Annual Report 2009-2010 Spine 5 Mm CMYK

Spine 5 mm CMYK

Wealth is in the things that

bring us happiness.

Annual Report 2009-2010 www.dhanbank.com

Registered & Corporate Office The Dhanalakshmi Bank Limited, PB No. 9, Dhanalakshmi Building, Naickanal, Thrissur - 680001.

Mumbai Office The Dhanalakshmi Bank Limited, Trade View, 2nd floor, Near Gate No. 4, Kamala Mills Compound, Lower Parel, Mumbai - 400013.

Kindly refer to the website for other offices.

Company Secretary Ravindran K. Warrier

Auditors M/S Walker Chandiok & Co., New Delhi M/S Shah Gupta & Co., Mumbai

Legal Advisors Amarchand & Mangaldas Suresh A. Shroff & Co. Advocates & Solicitors

Major Exchange Houses UAE Exchange Centre LLC Al Ahalia Money Exchange Bureau

Foreign Correspondent Banks Deutsche Bank Trust Company Americas Wachovia Bank NA - Wells Fargo Company Commerzbank AG National Westminster Bank PLC

Stock Exchanges National Stock Exchange (NSE) Bombay Stock Exchange (BSE) Cochin Stock Exchange (CSE)

Registrar & Transfer Agents Karvy Computer Share 2 T K CLtd. V G Plot No. 17-24, Vithal Rao Nagar, Madhapur, Hyderabad - 500081. Contents

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"ALANCE3HEET!BSTRACT

Ghyanendra Nath Bajpai Chairman

06 Chairman’s Address

Dear Shareholders,

The triumph of the resilient, never-say-die spirit of India is the singular pick from last year’s journey.

2009 was truly a challenging year for the Indian economy. The global economy had slowed down perceptibly; confidence had evaporated substantially, bringing businesses and the financial markets to a virtual standstill. Understandably, the year began on a cautious note. The monsoons played truant, adding yet another layer of uncertainty and risk for the country.

The Government and the Central Bank together managed to combat the situation creditably, through a well-coordinated launch of fiscal and monetary stimulus programmes. While their concerted action did help avert the negative fall-out from the global slowdown successfully, a set of new challenges shaped up: battling food scarcity left behind by a deficient monsoon, and the reining in of the attendant double-digit food inflation, a soaring fiscal deficit, complemented by the Government’s borrowing programme.

Fortunately, the winter crop has brought some comfort and the anxiety over food prices has abated somewhat. The economy now seems well poised to achieve all-round growth with industrial production rising every month and investment demand regaining some of its earlier sheen. In the months ahead, the focus will be on strengthening the domestic macro economic environment to help consolidate the rebound in growth and sustain it over the medium term.

The optimism is reflected in the central bank’s annual monetary policy statement. The Reserve Bank of India, on the back of growing exports and recovery in industrial sector, has revised the GDP growth forecast to 8%, after an estimated growth of 7.4% during 2009-10. RBI data reveals that credit growth has touched 16%, in-line with its revised estimates. Buoyant industrial production, growth in exports, pick-up in corporate capital expenditure and higher consumer spending is expected to accelerate credit growth further.

But we may not be out of the woods completely, and despite the inherent strength of the Indian economy, we need to remain alert to ripple effects washing up on our shores from the second phase of the global slowdown. The nature of economic crisis has shifted from financial sector excesses to a fiscal mess in the Eurozone, raising the spectre of sovereign defaults. This has tripped the nascent global recovery that was taking roots just a few months ago. We will have to watch out how this new development pans out and be prepared to put in place credible crisis management systems, should the need arise.

Amitabh Chaturvedi MD & CEO MD & CEO’s Address

Dear Shareholders,

It has been a year since I spoke to you all and a lot has happened since then. It has been a rather eventful year, full of opportunities, challenges and growth impulses. When I spoke to you all last year around the same time, from this very platform, I had promised you a repurposed bank with new people, products, processes, infrastructure and technology. I am glad to inform you that many of these building blocks have now been put in place. I am also proud to state that your Bank has successfully rolled out and implemented the plans I laid out before you last year and we are truly on our way to becoming one of the top private sector banks in India.

I have always believed that your Bank’s true value proposition - for all its stakeholders - lies in its impregnable foundation and its deep roots in society. We focused our energies on building on this foundation last year. Let me take the opportunity to highlight some of our achievements.

One of our first challenges was to expand your Bank’s footprint and take it national. We were successful in launching 63 new branches and 208 ATMs. Our total customer touch-points have increased to 550 on a pan-India basis. I feel proud to say that today your Bank has a network of 270 branches and 280 ATMs in 136 cities and towns across India.

Expansion of network led to increase in business. For the second year in succession, our growth rates under deposits and advances were far ahead of the banking industry. The Bank's total business increased by 48% to Rs. 12,155 crore from Rs. 8,214 crore, which is a record. While deposits increased by 43% from Rs. 4,969 crore to Rs. 7,098 crore, advances rose from Rs. 3,245 crore to Rs. 5,056 crore at 56%.

Increase in business meant dedicating more resources. Emphasis on people and leadership development across all levels in the organisation helped us attain our growth targets. Last year, we recruited experienced talent across business verticals and support functions, thereby more than doubling our team strength to around 3,500. Your Bank has always been known for its warmth, transparency and high degree of fairness in all its systems and processes. Balanced scorecard, one of the most scientific performance measurement tools, was introduced by your Bank to translate strategies into operational objectives to drive performance and behaviour. The Bank also introduced ESOPs last year not only as a motivation and retention tool, but also to attract talent from the competition.

Although customer appreciation is our highest reward, we were also recognised and awarded by various industry surveys, media houses and the peer group. I feel proud to mention that based on a joint survey undertaken by consultancy company KPMG and

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grew at 22.28%, savings bank at 32.3% and term deposits at 47.48%. On the credit front, the sharp increase in credit deposit ratio by over 700 basis points in 12 months pointed to the Bank's calculated aggression on this front at a time when the entire industry was grappling with low credit offtake.

Special mention also needs to be made that credit disbursements cut across different classes of borrowers. This means that even while corporate credit showed excellent growth, the Bank also achieved the RBI mandated norms under priority sector, agriculture and weaker section advances by comfortable margins as at the end of March 2010.

The progress under key business parameters during the year was as under:

(Rs. in crores) Head As on As on March 31, 2009 March 31, 2010 Growth (%)

Current Deposits 460.79 563.47 22.28

Savings Bank Deposits 746.84 988.07 32.30

Term Deposits 3761.18 5546.94 47.48

Total Deposits (a) 4968.81 7098.48 42.86

Total Advances (b) 3245.30 5056.48 55.81

TOTAL BUSINESS (a) + (b) 8214.11 12154.96 47.98

Credit Deposit Ratio (%) 65.31 72.41 --

Outlook The IMF has projected that global growth will recover from -0.8% in 2009 to 3.09% in 2010 and further to 4.3% in 2011. Every economic indicator is poised for an upward movement arising from the favourable effects of massive fiscal rescue packages, increase in confidence levels and strong recovery in key economies.

The Indian economy is also confidently looking ahead. Corporate results during the year have been encouraging and the services sector has exhibited welcome buoyancy. Overall, the outlook for the Indian economy is strong with most growth forecasts for 2010-11 at around 8-8.5%. Even the baseline projection for WPI inflation is 5.5% for March 2011 against the projection of 8.5% for March 2010. There are, however, three concerns for the Indian economy in the coming months – inflation, management of capital inflows and the ripple effects of the global volatility. These are being addressed by an array of fiscal and monetary measures.

Against the above positive backdrop, the RBI has projected, for FY 2011, aggregate deposits of Scheduled Commercial Banks growing at 18% and non-food credit increasing by 20%.The huge allocation of Rs. 1.73 lakh crore to the infrastructure sector in the union budget for 2010-11 opens up immense business possibilities for the banking system.

Factoring the macro economic scenario, as well as the Bank’s propensity for accelerated growth, the Bank has set for itself some ambitious and challenging goals for 2010-11. Every effort would be made during the year to squeeze maximum efficiencies out of the large scale capacities created during the year 2009-10.

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4(%$(!.!,!+3(-)"!.+,)-)4%$ REPORT ON CORPORATE GOVERNANCE - 2009-10 This report on corporate governance forms part of the Directors’ Report to shareholders. The Board of Directors and the management of this bank believe that a strong system of corporate governance is critically important to usher in a value-based organisation that is socially responsible and commercially vibrant. The bank is committed to adhering to the highest standards of corporate governance through constantly benchmarking itself against global best practices. The essence of the bank’s corporate governance philosophy flows from the following: • All Directors, other than the Managing Director and CEO, are independent Directors. • The Directors have distinguished themselves in different walks of life through experience and expertise. • The Board is professional in character with a strong commitment to shareholder value, transparency, accountability, ethical standards and regulatory compliance. • The Board’s approach to, and outlook, on every aspect of governance is propelled by a keenness to further the realisation of the Bank’s vision and mission. 1. Board of Directors: a) Movement of Directors during the year

Name of the Director Appointment Cessation Mr. Ghanshyam Dass Director at the 82nd annual general meeting held on July 31, 2009. Mr. Sateesh Kumar Andra Director at the 82nd annual general meeting held on July 31, 2009. Mr. Vidyadhara Rao Chalasani Re-appointed as Director and not liable to retire by rotation for a further period of three years w.e.f. 16.02.2010 Mrs. Nandini Rangaswamy Director w.e.f. May 13, 2009 b) Composition of the Board as on 31.03.2010: The composition of the Board is in compliance with para IA of Clause 49 of the Listing Agreement. All Directors except Mr. Amitabh Chaturvedi, Managing Director and Chief Executive Officer, are non-executive and independent Directors. The particulars of Directors, and the sectors they represent, for the purpose of Section 10-A (2) of the Banking Regulation Act, 1949, are as below:

Sl. No. Name of the Director/Designation Executive/Non-Executive Sector represented By Director 1 Mr. Ghyanendra Nath Bajpai Non-executive Majority - Finance 2 Mr. Amitabh Chaturvedi, MD & CEO Executive Majority - Banking & finance 3 Mr. Vidyadhara Rao Chalasani Non-executive Minority - Finance 4 Mr. K Srikanth Reddy Non-executive Majority - Agriculture & rural economy 5 Mr. Shailesh V. Haribhakti Non-executive Majority - Accountancy 6 Mr. S.Santhanakrishnan Non-executive Majority - Banking 7 Mr. Ghanshyam Dass Non-executive Majority - Banking & Finance 8 Mr. Sateesh Kumar Andra Non-executive Majority - Small scale industry All the Non-Executive Directors have furnished a declaration to the effect that they are independent Directors as per Clause 49 I (A) of the Listing Agreement. c) Number of Board meetings held during the year 2009-10 with dates During the year 2009-10, 10 Board meetings were held on the following dates: 29.04.2009, 27.05.2009, 31.07.2009, 27.08.2009, 06.10.2009, 24.10.2009, 14.12.2009, 11.01.2010, 23.01.2010 and 06.03.2010. d) Attendance of Directors

Sl. No. Director Number of Board meetings Last AGM Attendance Held Attended 01 Mr. Ghyanendra Nath Bajpai 10 10 Present 02 Mr. Amitabh Chaturvedi 10 10 Present 03 Mrs. Nandini Rangaswamy* 01 00 NA 04 Mr. Vidyadhara Rao Chalasani 10 05 Present 05 Mr. K Srikanth Reddy 10 09 Present 06 Mr. Shailesh V Haribhakti 10 08 Present 07 Mr. S. Santhanakrishnan 10 10 Present 08 Mr. Ghanshyam Dass# 07 06 NA 09 Mr. Sateesh Kumar Andra ## 07 06 NA * Ceased to be Director w.e.f 13.05.2009 # Appointed Director w.e.f. 31.07.2009 ## Appointed Director w.e.f. 31.07.2009

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54 4(%$(!.!,!+3(-)"!.+,)-)4%$ e) Directors’ shareholding as on 31.03.2010

Sl. No. Director No of shares held % of holding 1 Mr. Ghyanendra Nath Bajpai 25,000 0.04 2 Mr. Amitabh Chaturvedi Nil 0.00 3 Mr. Vidyadhara Rao Chalasani 200 0.00 4 Mr. K. Srikanth Reddy 15,000 0.02 5 Mr. Shailesh V Haribhakti 50,200 0.08 6 Mr. S Santhanakrishnan 700 0.00 7 Mr. Ghanshyam Dass 5,000 0.01 8 Mr. Sateesh Kumar Andra 400 0.00 f) The committees of Directors functioning in the bank during the year ending 31.03.2010 were as under: 1. Audit Committee 2. Remuneration Committee 3. Shareholders’ Grievance Redressal Committee 4. Large Value Fraud Monitoring Committee 5. Customer Service Committee 6. Risk Management Committee 7. Nomination Committee 8. Management Committee 9. Human Resources Development Committee 10. Information Technology Committee Details of committee positions held by the Directors of the bank and also of other companies are given below. g) Committee positions of Directors in the bank as on 31.03.2010:

Sl. Name of the Director Member Chairman No. 1 Mr. Ghyanendra Nath Bajpai 1. HRD Committee 1. HRD Committee 2. Nomination Committee 2. Nomination Committee 3. Risk Management Committee 3. Risk Management Committee 4. Remuneration Committee 4. Remuneration Committee 5. Information Technology Committee 5. Information Technology Committee 2 Mr. Amitabh Chaturvedi 1. Shareholders’ Grievance 1. Large Value Fraud Redressal Committee Monitoring Committee 2. Large Value Fraud 2. Shareholders’ Grievance Monitoring Committee Redressal Committee 3. Management Committee 4. Human Resource Development Committee 5. Remuneration Committee 6. Nomination Committee 7. Customer Service Committee 8. Risk Management Committee 9. Information Technology Committee 3 Mr. Vidyadhara Rao Chalasani 1. Shareholders’ Grievance – Redressal Committee 2. Large Value Fraud Monitoring Committee 3. Audit Committee 4. Customer Service Committee 5. Risk Management Committee 4 Mr. K. Srikanth Reddy 1. Shareholders’ Grievance – Redressal Committee 2. Management Committee 3. Human Resource Development Committee 4. Remuneration Committee 5. Audit Committee 6. Customer Service Committee 7. Information Technology Committee

55 4(%$(!.!,!+3(-)"!.+,)-)4%$

5 Mr. Shailesh V Haribhakti 1. Large Value Fraud – Monitoring Committee 2. Human Resource Development Committee 3. Remuneration Committee 4. Nomination Committee 5. Audit Committee 6. Risk Management Committee 6 Mr. S Santhanakrishnan 1. Shareholders’ Grievance 1. Customer Service Committee Redressal Committee 2. Audit Committee 2. Large Value Fraud 3. Management Committee Monitoring Committee 3. Management Committee 4. Nomination Committee 5. Audit Committee 6. Customer Service Committee 7. Risk Management Committee 8. Information Technology Committee 7 Mr.Ghanshyam Dass 1. Shareholders’ Grievance – Redressal Committee 2. Large Value Fraud Monitoring Committee 3. Information Technology Committee 4. Customer Service Committee 5. Risk Management Committee 6. Human Resource Development Committee 8 Mr. Sateesh Kumar Andra 1. Large Value Fraud – Monitoring Committee 2. Information Technology Committee 3. Audit Committee 4. Customer Service Committee 5. Remuneration Committee h) Committee position of Directors in other public limited companies as on 31.03.2010:

Sl. Name of the Companies Membership in Board Committees of No. Director Committees which Chairman 1 Mr. Ghyanendra 1. Future Generali India Life Insurance Co Ltd. – Audit Committee Nath Bajpai 2. Future Generali India Insurance Co Ltd. – Audit Committee 3. Emaar MGF Land Ltd. Audit Committee & – 4. Future Capital Holdings Ltd. Shareholder Griev- Shareholder 5. Kshitij Investment Advisory Company Ltd. ance Committee Grievance 6. Future Capital Investment Advisors Ltd. Audit Committee Committee (Formerly known as Indivision Investment Advisors Ltd.) – – 7. Future Ventures India Ltd. 8. Mandhana Industries Ltd. – Audit Committee 9. Dalmia Cement (Bharat) Ltd. Audit Committee – 10. Kingfisher Airlines Ltd. Audit Committee – 11. New Horizons India Ltd. – – 12. PNB Housing Finance Ltd. – – 13. Nitesh Estates Ltd. – – 14. Usha Martin Ltd. – – – – 2 Mr. Amitabh ––– Chaturvedi, Managing Director & CEO 3 Mr. Vidyadhara ––– Rao Chalasani 4 Mr. K Srikanth ––– Reddy

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56 4(%$(!.!,!+3(-)"!.+,)-)4%$

Sl. Name of the Companies Membership in Board Committees of No. Director Committees which Chairman 5 Mr. Shailesh V 1. Pantaloon Retail (India) Ltd. Audit Committee - Haribhakti 2. Blue Star Ltd. Audit Committee - 3. Hexaware Technologies Ltd. - Audit Committee 4. Akruti City Ltd. Audit Committee - 5. ACC Ltd. - Audit Committee 6. Ambuja Cements Ltd. Compensation & Audit Committee Remuneration 7. Future Capital Holdings Ltd. - Audit Committee 8. Mahindra Life Space Developers Ltd. Audit Committee - 9. Everest Kanto Cylinder Ltd. - - 10. Hercules Hoists Ltd. - - 11. J K Paper Ltd. - - 12. Fortune Financial Services (India) Ltd. - - 13. Raymond Ltd. - Audit Committee 14. Future Capital Financial Services Ltd. - - 6Mr. S 1. Reliance Capital Trustee Co. Ltd. Audit Committee - Santhanakrishnan 2. ICICI Home Finance Co. Ltd. Audit Committee - 3. Easy Access Financial Services Ltd. - - 4. Sundaram-Clayton Ltd. - - 5. TVS Credit Services Ltd. - - 7 Mr. Ghanshyam 1. Jain Irrigation Systems Ltd. - - Dass 2. Bio Pure Ltd. - - 8 Mr. Sateesh Kumar --- Andra 2. Audit Committee i) The Board of the Bank has constituted a five-member Audit Committee. All five members of the committee are Non-Executive Directors, with Mr. S Santhanakrishnan as its Chairman and Mr. Vidyadhara Rao Chalasani, Mr. K. Srikanth Reddy, Mr. Shailesh V. Haribhakti and Mr. Sateesh Kumar Andra as other members. ii) Brief description of the terms of reference: Apart from the mandatory items to be taken care of by the Audit Committee in accordance with Para II (D) of Clause 49 of the Listing Agreement, the role of the committee includes the following: a) Providing direction, as also overseeing operations of the total audit function in the Bank. b) Reviewing the Risk Based Internal Audit (RBIA)/audit function -- the system, its quality and effectiveness in terms of follow up. c) Reviewing the (RBIA) reports of all branches (first review) and final review of branches having high, medium and above risk level with “increasing” trend. d) Focusing on the follow-up of: • Reconciliation of inter-branch adjustment accounts • Long outstanding entries in inter-bank accounts and nostro accounts • Arrears in balancing of books at various branches • Frauds, and • Other key areas of housekeeping e) Reviewing half-yearly reports from the Compliance Officers of the bank. f) Following up on issues brought out in Long Form Audit Report (LFAR) and interacting with statutory auditors before finalisation of annual financial accounts and reports. g) Following up on issues/concerns raised in RBI’s inspection reports. h) Reviewing the quarterly and annual financial statements with the management. i) Review of revenue audit j) Review of concurrent audit of depository department k) Review of dishonored cheques of Rs. 1 crore and cheques issued by broker entities l) Review of forex transactions m) Review of concurrent audit of integrated treasury n) Business rating of all branches

57 4(%$(!.!,!+3(-)"!.+,)-)4%$ o) Review of concurrent audit of HO expenses p) Review of RBIA q) Minutes of audit committee of executives meetings held r) Review of inspection reports on zonal offices iii) Meetings, dates and attendance during the year

No. of meetings held during 2009- Dates of meetings 10 08 29.04.2009, 20.07.2009, 31.07.2009, 06.10.2009, 24.10.2009, 28.12.2009, 23.01.2010 & 05.03.2010 Details of attendance of each Director are as under:

Name of the Director Number of Audit Committee Meetings Held Attended Mr. S Santhanakrishnan 08 08 Mr. V. R. Chalasani# 02 02 Mr. Shailesh V. Haribhakti 08 07 Mr. Sateesh Kumar Andra## 04 04 Mr. K. Srikanth Reddy* 05 04 Mrs. Nandini Rangaswamy** 01 00 # Inducted to the committee w.e.f. 21.01.2010 ## Inducted to the committee w.e.f. 06.10.2009 * Ceased to be member w.e.f. 17.12.2009 ** Ceased to be Director w.e.f. 13.05.2009 3. Remuneration Committee: The Board constituted a Remuneration Committee on 29.02.2008, which was reconstituted on 27.09.2008 and 06.10.2009, to determine the modalities of providing appropriate incentives to employees, including stock options (i) to foster employee commitment and a feeling of ownership (ii) to retain employees or skill groups among them (iii) attract talented professionals (iv) to instill a sense of belonging to the bank, among employees. Remuneration and other perquisites paid to the part-time Chairman and Managing Director & CEO are as approved by the Reserve Bank of India. Non-Executive Directors are being paid sitting fees for each meeting attended by them. During the year, no remuneration, excepting sitting fees and re-imbursement of actual travel and out-of-pocket expenses was paid. iii) Meetings, dates and attendance during the year

No. of meetings held during 2009-10 Dates of meetings 03 11.06.2009, 06.08.2009 and 14.09.2009 The details of attendance of each Director are as under:

Name of the Director Number of Remuneration Committee Meetings Held Attended Mr. Ghyanendra Nath Bajpai 03 03 Mr. Amitabh Chaturvedi 03 03 Mr. K. Srikanth Reddy 03 03 Mr. Shailesh V. Haribhakti 03 03 Mr. Sateesh Kumar Andra# 00 00 Mrs. Nandini Rangaswamy* 00 00 # Inducted to the Committee w.e.f. 06.10.2009 * Ceased to be Director w.e.f. 13.05.2009 4. Shareholders’ Grievance Redressal Committee i) Mr. Ghyanendra Nath Bajpai, Mr. Amitabh Chaturvedi, Mr. K. Srikanth Reddy, Mr. S. Santhanakrishnan, Mr. V. R. Chalasani and Mr. Ghanshyam Dass are members of this committee. It reviews redressal of investors’ complaints like transfer of shares, non- receipt of annual reports, non-receipt of dividend warrants and other related matters. The committee also approves share transfers/transmission/split/consolidation/name deletion/name transportation/dematerialisation/ rematerialisation. The committee reviews reports from the Registrar and share Transfer Agent to monitor grievances redressal. During the year, the bank received two complaints from shareholders, which have been resolved.

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58 4(%$(!.!,!+3(-)"!.+,)-)4%$ ii) Details of Compliance Officer and Registrar & Transfer Agent are as follows: Description of Delegated Address of Delegated Telephone Fax E-mail ID Authority Authority Name and designation of Mr. Ravindran K. Warrier, 0487- 6617000, 0487-2335367 [email protected] Compliance Officer of the Bank Secretary to Board & 0487-2334612 (D) Company Secretary Registrar & Share Transfer Agent M/s. Karvy Computershare 040-23420815, 040-23420814 [email protected] P. Ltd. 23420824 iii) Details of number of meetings of Shareholders’ Grievance Redressal Committee held and their dates are as follows: No. of meetings held during 2009-10 Dates of meetings 06 29.04.2009, 31.07.2009, 06.10.2009, 14.12.2009, 23.01.2010 and 06.03.2010 The attendance of each member of the committee is given below: Sl. Name of Director No. of meetings held No. of meetings No. during Director’s tenure attended 1 Mr. Ghyanendra Nath Bajpai* 03 03 2 Mr. Amitabh Chaturvedi 06 06 3 Mr. K Srikanth Reddy 06 05 4 Mr. S Santhanakrishnan 06 06 5 Mr. V R Chalasani# 03 02 6 Mr. Ghanshyam Dass## 03 02 * Ceased to be a member w.e.f 06.10.2009 # Inducted to the committee w.e.f. 06.10.2009 ## Inducted to the committee w.e.f. 06.10.2009 iv) Number of investor complaints received and addressed during 2009-10 are as follows:

Sl. No. Nature of complaint No. of complaints No. of complaints No. of complaints No. of complaints pending as on received resolved pending as on 01.04.2009 31.03.2010 1 Transfer-related complaints Nil 1 1 Nil 2 Dividend-related complaints Nil 1 1 Nil 3 Others Nil 0 0 Nil Total Nil 2 2 Nil 5. Large Value Fraud Monitoring Committee: The committee has been constituted to exclusively monitor large frauds of Rs. 1 crore and above. Meetings, dates and attendance during the year No. of meetings held during 2009-10 Dates of meetings 02 29.04.2009 and 06.10.2009 The attendance of each member of the committee is given below: Name of Director Number of large value fraud monitoring committee meetings Held Attended Mr. Amitabh Chaturvedi 02 02 Mr. Shailesh V. Haribhakti 02 02 Mr. S. Santhanakrishnan 02 02 Mr. V. R. Chalasani# 00 00 Mr. Ghanshyam Dass## 00 00 Mr. Sateesh Kumar Andra### 00 00 Mrs. Nandini Rangaswamy* 01 00 ## Inducted to the committee w.e.f. 06.10.2009 ### Inducted to the committee w.e.f. 06.10.2009 ### Inducted to the committee w.e.f. 06.10.2009 * Ceased to be a Director w.e.f. 13.05.2009 6. Customer Service Committee: Customer Service Committee monitors the progress in improving quality of service provided to customers. The committee also reviews implementation of RBI guidelines and procedures that have a bearing on customer service of the bank and makes suitable recommendations.

59 4(%$(!.!,!+3(-)"!.+,)-)4%$ Meetings, dates and attendance during the year

No of meetings held during 2009-10 Dates of meetings 03 27.08.2009, 23.01.2010 and 31.03.2010 The details of attendance of each Director are as under:

Name of Director Number of customer service committee meetings Held Attended Mr. Amitabh Chaturvedi 03 03 Mr. S. Santhanakrishnan 03 03 Mr. K. Srikanth Reddy 03 03 Mr. V. R. Chalasani # 02 01 Mr. Ghanshyam Dass ## 02 01 Mr. Sateesh Kumar Andra ### 02 02 # Inducted to the Committee w.e.f. 06.10.2009 ## Inducted to the Committee w.e.f. 06.10.2009 ### Inducted to the Committee w.e.f. 06.10.2009 7. Risk Management Committee: The Risk Management Committee of the Board oversees implementation of RBI’s risk management guidelines. The committee reviews procedures laid down to ensure that the bank controls the risks through a properly defined framework. Meetings, dates and attendance during the year

No of meetings held during 2009-10 Dates of meeting 04 27.05.2009, 17.07.2009, 14.12.2009 and 31.03.2010 The details of attendance of each Director are as under:

Name of Director Number of risk management committee meetings Held Attended Mr. G N Bajpai 04 04 Mr. Amitabh Chaturvedi 04 04 Mr. V R Chalasani # 02 00 Mr. Shailesh V Haribhakti ## 02 02 Mr. S Santhanakrishnan 04 04 Mr. Ghanshyam Dass ### 02 02 Mrs. Nandini Rangaswamy * 00 00 # Inducted to the committee w.e.f. 06.10.2009 ## Inducted to the committee w.e.f. 06.10.2009 ### Inducted to the committee w.e.f. 06.10.2009 * Ceased to be Director w.e.f. 13.05.2009 8. Nomination Committee: The committee undertakes the process of due diligence to determine suitability of the person for appointment/continuing to hold the position of Director on the Board, based on the specific criteria prescribed by RBI. Meetings, dates and attendance during the year

No. of meetings held during 2009-10 Dates of meetings 05 29.04.2009, 04.07.2009, 17.07.2009, 23.01.2010 and 31.03.2010 The details of attendance of each Director are as under: Name of Director Number of nomination committee meetings Held Attended Mr. G. N. Bajpai 05 05 Mr. Amitabh Chaturvedi 05 05 Mr. Shailesh V. Haribhakti 05 03 Mr. S. Santhanakrishnan 05 05

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60 4(%$(!.!,!+3(-)"!.+,)-)4%$ 9. Management Committee: The Management Committee exercises all lending powers up to Rs. 6 crore, sanction of one-time settlement & write-off and adminis- trative powers. Meetings, dates and attendance during the year No of meetings held during 2009-10 Dates of meetings 08 29.04.2009, 27.05.2009, 31.07.2009, 27.08.2009, 06.10.2009, 14.12.2009, 23.01.2010 and 06.03.2010 The details of attendance of each Director are as under: Name of Director Number of Management Committee meetings Held Attended Mr. Amitabh Chaturvedi 08 08 Mr. K. Srikanth Reddy 08 07 Mr. S. Santhanakrishnan 08 08 Mrs. Nandini Rangaswamy* 01 00 * Ceased to be Director w.e.f. 13.05.2009 10. Human Resources Development Committee: This committee oversees the overall manpower planning of the bank and conducts interviews for lateral recruitment and internal promotions. Meetings, dates and attendance during the year No of meetings held during 2009-10 Dates of meetings 03 09.11.2009, 25.01.2010 and 31.03.2010 The details of attendance of each Director are as under:

Director Number of HRD committee meetings Held Attended Mr. G. N. Bajpai 03 03 Mr. Amitabh Chaturvedi 03 03 Mr. K. Srikanth Reddy 03 03 Mr. Shailesh V. Haribhakti 03 03 Mr. Ghanshyam Dass # 03 03 # Inducted to the Committee w.e.f. 06.10.2009 11. Information Technology Committee The committee was dissolved on 30.04.08 and revived with the following members on 26.07.08 to address issues relating to IT. Meetings, dates and attendance during the year No. of meetings held during the year 2009-10 Dates of meetings 01 09.11.2009 The details of attendance of each Director are as under:

Director Number of Information Technology Committee meetings Held Attended Mr. Ghyanendra Nath Bajpai 01 01 Mr. Amitabh Chaturvedi # 01 01 Mr. K. Srikanth Reddy 01 01 Mr. S. Santhanakrishnan 01 01 Mr. Ghanshyam Dass ## 01 01 Mr. Sateesh Kumar Andra ### 01 01 # Inducted to the Committee w.e.f. 06.10.2009 ## Inducted to the Committee w.e.f. 06.10.2009 ### Inducted to the Committee w.e.f. 06.10.2009 General Body Meetings Location and time where last three annual general meetings (AGMs) were held:

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AGM Number Date & Time Venue 82nd 31.07.2009. 03 P M Lulu International Convention Centre, 81st 27.09.2008. 11 AM Thrissur 80th 26.09.2007. 11 AM Kousthubham, Shornur Road, Thrissur Kousthubham, Shornur Road, Thrissur Details of special resolutions passed in the three previous AGMs: No special resolution was passed at the 80th AGM. At the 81st AGM, a special resolution was passed to increase foreign investments by permitted FIIs and NRIs, not exceeding 49% and 24% respectively of the bank’s paid up capital. At the 82nd AGM, two special resolutions were passed -- one to alter Clause (iii) of Article 64 of the bank’s Articles of Association and the other to implement the Dhanalakshmi Bank Employees Stock Option Scheme 2009. Postal Ballot During the year, the bank passed a resolution through postal ballot. RBI, in its annual financial inspection for the year ended March 31, 2008, had observed that the bank’s memorandum has an enabling clause (item ‘n’ of Clause III. 1 of Memorandum of Associa- tion) to conduct chit fund and kuri business, which was contrary to Section 6 of the Banking Regulation Act, 1949. After obtaining a ‘no objection’ from RBI for altering the memorandum, the bank appointed Dr. K. S. Ravichandran, partner, KSR & Co. Company Secretaries, Coimbatore as scrutiniser for this purpose. The bank received the report dated July 18, 2009, from scrutiniser stating that the resolution has been duly carried through as a special resolution. As per the report of the scrutinizer dated July 18, 2009, up to 78,11,127 valid votes were cast. Of the valid votes 77,73,293 were in favour of the special resolution and 37,834 against. The result of postal ballot was declared by the Chairman by a declaration made on July 20, 2009. The resolution stands passed as a special resolution on July 11, 2009, in accordance with Section 189(2) of the Companies Act, 1956. 12. Disclosures Related Party Transactions During the financial year, the bank did not enter into any related party transactions with its Directors or senior management or their relatives that would potentially be in conflict with and/or adversely affect the bank’s interests, excepting remuneration paid to the MD & CEO. Disclosure of Accounting Treatment In the preparation of financial statements, there has been no treatment different from that prescribed in the accounting standard being followed. Risk Management The bank follows an integrated approach to managing risks and the processes are embedded in the fundamental business model. The risk management landscape in the bank covers the stages of identifying, assessing, measuring, managing, controlling and reporting risk concerns across all the risk classes viz., credit, market and operational risks. The organisation of risk management function in the bank spans various levels of oversight from operatives to the Board, offering lines of defence and escalation. The risk management policies adopted and reviewed periodically articulate and codify the strategy, structure, processes and systems to manage bank-wide risks. These are administered by the structured/internalised roles and functions of the committees, namely Risk Management Committee of the Board (RMC), Risk Management Committee of Executives (RME), As- set Liability Management Committee (ALCO), Credit Risk Management Committee (CRMC) and the Operational Risk Management Committee (ORMC). Key risk management activities are reviewed by the Board-level Risk Management Committee and are reported to the Board. Remuneration of Directors Name & Designation Salary Perquisites Total Mr. Amitabh Chaturvedi, MD & CEO Rs. 36,00,000 – Rs. 36,00,000 No other Director is paid any remuneration other than the sitting fees for attending meetings of the Board/Committee of Directors. During the year: - The bank has complied with the directives issued by the stock exchanges/Securities and Exchange Board of India (SEBI) and other statutory authorities on all matters related to capital markets and no penalties have been imposed by them. - The bank has complied with all mandatory requirements and has adopted the following non-mandatory requirements of Clause 49 of the Listing Agreement: • The Nomination Committee undertakes the process of due diligence to determine the suitability of the person for appointment/continuing to hold appointment as a Director on the Board. • The Company has framed whistle blower policy and affirmed that no personnel have been denied access to the Audit Committee.

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62 4(%$(!.!,!+3(-)"!.+,)-)4%$ 13. Means of Communication The Board took on record the unaudited financial results subjected to a “limited review” by the auditors, in the prescribed proforma of the stock exchanges within one month of the closure of every quarter, and announced immediately thereafter, the results to all stock exchanges where the bank’s shares are listed. The Board also approved the audited annual results within three months. The highlights of the quarterly results and audited annual results were published in one national and one vernacular newspaper within 48 hours of the conclusion of the Board meeting in which they were taken on record. Information was also placed on the bank’s website at www.dhanbank.com. All information as per Clause 51 of the Listing Agreement was filed on the Electronic Data Information Filing and Retrieval (EDIFAR) website within the time specified by SEBI. 14. General Shareholder Information

Date July 15th, 2010 (Thursday) 83rd agm Time 11.00 a.m. Venue Lulu International Convention Centre, Thrissur - 680 003 Name and other details regarding compliance Mr. Ravindran K. Warrier officer Secretary to Board & Company Secretary The Dhanalakshmi Bank Ltd. Naickanal, Thrissur - 680 001 Financial year 2009-10 Date of book closure Friday, July 9th, 2010 to Thursday, July 15th, 2010 (Both days inclusive) Dividend payment date July 19th, 2010 Listing on stock exchanges The equity shares of the Bank are listed on - Cochin Stock Exchange Ltd. Bombay Stock Exchange Ltd. National Stock Exchange of India Ltd. Stock code – equity shares 532180 – Bombay Stock Exchange Ltd. DHANBANK – National Stock Exchange of India Ltd. Registrar and transfer agents M/s Karvy Computershare Private Ltd. ‘Plot No. 17-24, Vittal Rao Nagar, Madhapur, Hyderabad - 500 081. Phone : (040) 23420815 - 824 Fax : (040) 23420814 E-mail : [email protected] Dematerialisation of shares and liquidity The equity shares are available for dematerialisation with ISIN No. INE 680A01011. Registered office and address for P.B. No.9, Dhanalakshmi Buildings, Naickanal, Thrissur 680 001. correspondence E-mail : [email protected] Market Price Data The monthly high and low prices of the bank’s shares traded on The National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Ltd. (BSE) during each month in the financial year ended March 31, 2010, are as follows:

Month NSE BSE High (Rs.) Low (Rs.) High (Rs.) Low (Rs.) April 2009 76.00 50.00 74.40 50.10 May 2009 107.10 60.10 107.20 62.30 June 2009 119.00 89.00 118.35 89.10 July 2009 134.95 95.50 134.25 95.05 August 2009 139.80 107.60 140.00 108.00 September 2009 174.60 130.10 174.40 130.30 October 2009 178.30 133.50 178.40 134.10 November 2009 154.70 123.15 154.40 123.55 December 2009 154.95 136.60 154.70 136.65 January 2010 153.70 131.40 153.25 131.95 February 2010 148.50 124.00 148.00 124.00 March 2010 146.70 129.25 147.90 129.60

63 4(%$(!.!,!+3(-)"!.+,)-)4%$ Distribution of Shareholding as on 31.03.2010:

Share Range No. of Shares % of Members No. of Shares % of shares upto 1 - 5000 38038 83.96 60201280 9.39 5001 - 10000 3843 8.48 29961920 4.67 10001 - 20000 1873 4.13 27303040 4.26 20001 - 30000 575 1.27 14391330 2.24 30001 - 40000 231 0.51 8281230 1.29 40001 - 50000 187 0.41 8832180 1.38 50001 - 100000 270 0.60 19703750 3.07 100001 & Above 287 0.63 472481270 73.69 Total 45304 100.00 641156000 100.00 Category-wise Distribution of Shareholding as on 31.03.2010:

Sl. No. Category No. of Share holders No. of Shares held % of Total Shares 1 Banks 4 231337 0.36 2 Clearing Members 125 103078 0.16 3 Directors 7 96500 0.15 4 Foreign Institutional Investor 16 15947085 24.87 5 HUF 487 745120 1.16 6 Insurance Companies 1 260986 0.41 7 Bodies Corporates 940 14378367 22.43 8 Mutual Funds 6 797448 1.24 9 Non-Resident Indians 731 3696927 5.77 10 Resident Individuals 42984 27858322 43.45 11 Trusts 3 430 0.00 Total 45304 64115600 100.00 As on 31.03.2010, 47,11,472 shares, constituting 7.35%, and 5,94,04,128 shares, constituting 92.65% of the paid up capital, were held in physical and electronic mode respectively. As per SEBI directives, the settlement of the bank’s shares is to be compulsorily done in demat form. In case of physical transfers, the share transfer instruments, as and when received are duly processed and shares in respect of valid share transfer instruments are transferred in the names of transferee, complying with the rules in force. 15. Compliance status of Clause 49 of the listing agreement: All Board members and senior management personnel have affirmed compliance with the code of conduct. A declaration to this effect by the Managing Director & CEO is annexed as annexure I to this report. The bank has complied with all mandatory recommendations prescribed in Clause 49 of the Listing Agreement. A certificate to this effect from the bank’s statutory auditors is annexed as annexure II to this report.

ANNEXURE I Managing Director & CEO Certification on compliance with the Code of Conduct for Directors and Senior Management personnel of the bank To the members of THE DHANALAKSHMI BANK LIMITED I affirm that the Board of Directors and Senior Management Personnel of the Bank have complied with the Code of Conduct during the financial year ended March 31, 2010.

Place: Mumbai Amitabh Chaturvedi Date: 11 May 2010 Managing Director & CEO

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64 4(%$(!.!,!+3(-)"!.+,)-)4%$ ANNEXURE II AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE To the shareholders of The Dhanalakshmi Bank Limited

We have examined the compliance of conditions of Corporate Governance by The Dhanalakshmi Bank Limited for the year ended 31 March 2010 as stipulated in Clause 49 of the Listing Agreement of the Bank with the Stock Exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Bank for for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Bank.

In our opinion and to the best of our information and according to the explanantions given to us, we certify that the Bank has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.

We further state that such compliance is neither an assurance to future viability of the Bank nor the efficiency or effectiveness with which the management has conducted the affairs of the Bank.

For Walker, Chandiok & Co For Shah Gupta & Co Chartered Accountants Chartered Accountants Firm Registration No: 001076N Firm Registration No: 109574W

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No: F-37606

Place: Mumbai Date: 11 May 2010

65 4(%$(!.!,!+3(-)"!.+,)-)4%$ ANNEXURE III TO THE DIRECTORS’ REPORT

Disclosure as per SEBI Guideline (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 as on March 31, 2010 A. Particulars ESOP Scheme 1 Number of options granted 3,979,225 2 The Pricing Formula Closing price prior to the date of meeting of the Remuneration Committee in which the options are granted, on the Stock Exchange where there is highest trading volume on the said date 3 Number of options vested - 4 Number of options exercised - 5 Total number of shares arising as a result of exercise of - options 6 Number of options lapsed - 7 Variation in the terms of options NA 8 Money realised by exercise of options - 9 Total Number of Options in force 3,979,225 B. Employee-wise details of options granted to: (i) Senior managerial personnel Name No. of options granted Amitabh Chaturvedi 1,050,000 Jayakumar P G 42,000 Bipin Kabra 350,000 Rajeev Deoras 300,000 Manish Kumar 300,000 (ii) Employees who were granted, during any one year, options amounting to 5% or more of the options granted during the year Name No. of options granted Amitabh Chaturvedi 1,050,000 Bipin Kabra 350,000 Rajeev Deoras 300,000 Manish Kumar 300,000 Rajrishi Singhal 300,000 Manish Sarraf 300,000 (iii) Identified employees who were granted option, during any one year, equal or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Name No. of options granted Amitabh Chaturvedi 1,050,000 C. Diluted Earnings Per Share pursuant to issue of shares on exercise of options calculated in accordance with Accounting Standard (AS) 20 3.64 D. The impact on the profits and EPS of the fair value method is given in the table below - Rs. Profit as reported 23,3037,000 Add - Intrinsic Value Cost - Less - Fair Value Cost 73,339,887 Profit as adjusted 159,697,113 Rs. Earning per share (Basic) as reported 3.64 Earning per share (Basic) adjusted 2.49

Earning per share (Diluted) as reported 3.64 Earning per share (Diluted) adjusted 2.49

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E. Weighted average exercise price of Options whose (a) Exercise price equals market price 118.35 (b) Exercise price is greater than market price Nil (c) Exercise price is less than market price Nil Weighted average fair value of options whose (a) Exercise price equals market price 72.62 (b) Exercise price is greater than market price Nil (c) Exercise price is less than market price Nil F. Method and Assumptions used to estimate the fair value of options granted during the year: The fair value has been calculated using the Black Scholes Option Pricing model The Assumptions used in the model are as follows: Date of grant 6-Aug-09 6-Aug-09 ESOP JESOP 1. Risk Free Interest Rate 7.19% 7.28% 2. Expected Life 6.05 6.50 3. Expected Volatility 63.90% 63.90% 4. Dividend Yield 1.13% 1.13% 5. Price of the underlying share in market at the time of 115.50 115.50 the option grant (Rs.) The Bank hereby undertakes: 1. That the approval of shareholders by way of separate resolution in the General Meeting shall be obtained in case of grant of option to employees of subsidiary or holding company. 2. That the lapsed equity shares out of the proposed equity shares to be allotted under ”Dhanalakshmi Bank Limited Employee Stock Option Scheme 2009” will be used for future allotment to the eligible employees of the Bank. 3. In case, company calculates employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed in the Directors’ Report and also the impact of this difference on profits and on EPS of the company shall be disclosed in the Directors’ Report

67 WWWDHANBANKCOM ANNEXURE IV TO THE DIRECTORS’ REPORT

Statement of particulars of employees pursuant to provisions of Section 217(2A) of the Companies Act, 1956 and forming part of the Director’s Report for the year ended 31st March, 2010

Remunera- Whether the tion Nature of Other Experi- Date of employee holds Emp. ID Name Designation Received Employment Terms & Nature of Duties Qualification Age Last Employment ence Joining 2% or more Equity [Apr ‘09 - Conditions Shares of the Co. Mar ‘10]

CEO & On-roll Managing Reliance Capital 2452 Amitabh Chaturvedi Managing 36,00,000 NA B.Com., CA 18 13.10.2008 42 No Employment Director & CEO Ltd. Director

On-roll Chief Financial B.Com., ICWAI, 2466 Bipin Kabra President 19,27,354 NA 17 17.01.2009 42 Zee Group No Employment Officer [CFO] CA

On-roll Head - Credit & 558 Jayakumar P G President 16,59,006 NA B.Sc., CAIIB 31 16.05.1977 58 N.A. No Employment Operation

On-roll Head - Human 2513 Manish Kumar President 19,23,097 NA PGDPM 16 02.04.2009 40 IDFC Ltd. No Employment Resources & CSR

Executive On-roll 2473 Manish Sarraf 18,66,969 NA Head - Treasury B.Com., MBA 18 23.01.2009 41 Siemens Ltd. No Vice President Employment

Executive On-roll Head - Investor Cholamandalam 3021 Parag Kothari 19,78,106 NA BE, MFM 19 17.08.2009 42 No Vice President Employment Relations DBS Finance Ltd.

Head - On-roll Kotak Mahindra 2509 Rajeev Deoras President 19,23,097 NA Wholesale B.E., CAIIB 25 02.04.2009 50 No Employment Bank Banking

Executive On-roll Head - Branch 2592 Salil Datar 17,40,573 NA B.Com., MMS 19 09.06.2009 43 ICICI Bank No Vice President Employment Banking

Suresh Executive On-roll Head - Trade and Kotak Mahindra 3389 13,05,864 NA B.Com., CA 22 01.10.2009 47 No Balasubramanian Vice President Employment Advances Bank

Executive On-roll Head - Retail Reliance Capital 4390 Arvind Hali 3,63,576 NA B.E., MMS 15 03.03.2010 38 No Vice President Employment Assests Ltd. 68 AUDITORS’ REPORT

1. We have audited the attached Balance Sheet of The Dhanalakshmi Bank Limited, Thrissur as at 31 March 2010 the annexed Profit and Loss Account and the Cash Flow Statement for the year ended on that date, in which are incorporated the audited returns of 11 branches and treasury division audited by us, and 227 Branches audited by the Branch Auditors. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949, read with Section 211 of the Companies Act, 1956. 4. On the basis of our audit and having regard to the reports received by us from the auditors of the branches audited by other auditors, which have been considered by us for issuing our opinion, we report that: a. we have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory; b. in our opinion, the transactions of the Bank, which have come to our notice, have been within the powers of the Bank; 5. In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the accounting principles generally accepted in India including Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956, in so far as they apply to the Bank and are not inconsistent with the accounting policies prescribed by the Reserve Bank of India. 6. We further report that: a. the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; b. in our opinion, proper books of account as required by law have been kept by the Bank so far as appears from our examination of those books; c. based on information and explanations given to us, the Central Government has, till date, not prescribed any cess payable under Section 441A of the Companies Act, 1956; d. on the basis of the written representations received from the Directors as at 31 March 2010, and taken on record by the Board of Directors, none of the directors is disqualified as at 31 March 2010 from being appointed as a director in terms of Section 274(1) (g) of the Companies Act, 1956; 7. In our opinion and to the best of our information and according to the explanations given to us, and on consideration of reports submitted by the auditors of the branches not audited by us, the said financial statement together with the notes thereon and attached thereto give the information required by the Banking Regulation Act, 1949, as well as the Companies Act, 1956, in the manner so required for banking companies, give a true and fair view in conformity with the accounting principles generally accepted in India; a. in the case of Balance sheet, of the state of affairs of the Bank as at 31 March 2010; b. in the case of Profit and Loss Account, of the profit for the year ended on that date; and c. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

For Walker, Chandiok & Co For Shah Gupta & Co Chartered Accountants Chartered Accountants Firm Registration No: 001076N Firm Registration No: 109574W

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No: F-37606

Place: Mumbai Date: 11 May 2010

69 4(%$(!.!,!+3(-)"!.+,)-)4%$ "!,!.#%3(%%4!3!4-!2#(

Rs in thousands

#APITALAND,IABILITIES 3CHEDULE !SAT !SAT -ARCH -ARCH

Capital 1 641156 641156

Reserves and Surplus 2 3759615 3603626

Deposits 3 70984840 49688113

Borrowings 4 1205534 -

Other Liabilities and Provisions 5 4277765 2495346

4OTAL

!SSETS

Cash and Balances with Reserve Bank of India 6 6128986 3949949

Balances with banks and money at call and short notice 7 1374297 2910706

Investments 8 20277927 15673623

Advances 9 50062586 31960564

Fixed Assets 10 794701 462061

Other assets 11 2230413 1471338

4OTAL

Contingent Liabilities 12 5575271 2495301

Bills for collection 552374 537043

Significant Accounting Policies and Notes forming part of the Financial Statements 17&18

Raghu Mohan N. Ravindran K. Warrier Bipin Kabra Senior Vice President (Finance & Accounts) Company Secretary Chief Financial Officer

Ghanshyam Dass Amitabh Chaturvedi Ghyanendra Nath Bajpai Director Managing Director & CEO Chairman

S. Santhanakrishnan Shailesh V. Haribhakti K. Srikanth Reddy Director Director Director

In terms of our report of even date attached For Walker, Chandiok & Co. For Shah Gupta & Co. Chartered Accountants Chartered Accountants

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No.: F- 37606 Firm Reg. No.: 001076N Firm Reg. No.:109574W Date: May 11, 2010 Place: Mumbai

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70 4(%$(!.!,!+3(-)"!.+,)-)4%$ PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2010 Rs in thousands Schedule Year ended Year ended 31 March 2010 31 March 2009 Income Interest earned 13 5345706 4084150 Other income 14 909876 793594 Total 6255582 4877744 Expenditure Interest expended 15 3940207 2867958 Operating expenses 16 1928582 1130740 Provisions and contingencies 153756 304532 Total 6022545 4303230 Net Profit/(Loss) for the year 233037 574514 Profit/(Loss) brought forward 100 100 Transfer from Dividend Payable Account including Dividend Tax 37504 Total 233137 612118 Appropriations Transfer to Statutory Reserve 69911 172354 Transfer to Capital Reserve 64927 37940 Transfer to Special Reserve U/S 36(1)(viii) of Income Tax Act 15844 14259 Transfer to Other Reserves 7343 312453 Proposed Dividend 64116 64116 Dividend Tax 10896 10896 Balance carried to Balance Sheet 100 100 Total 233137 612118 Earnings Per Share (in Rupees) Basic 3.64 9.16 Diluted 3.64 9.16 Significant Accounting Policies and Notes forming part of the Financial Statements 17 & 18 Raghu Mohan N. Ravindran K. Warrier Bipin Kabra Senior Vice President (Finance & Accounts) Company Secretary Chief Financial Officer

Ghanshyam Dass Amitabh Chaturvedi Ghyanendra Nath Bajpai Director Managing Director & CEO Chairman

S. Santhanakrishnan Shailesh V. Haribhakti K. Srikanth Reddy Director Director Director

In terms of our report of even date attached For Walker, Chandiok & Co. For Shah Gupta & Co. Chartered Accountants Chartered Accountants

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No.: F- 37606 Firm Reg. No.: 001076N Firm Reg. No.:109574W Date: May 11, 2010 Place: Mumbai

71 4(%$(!.!,!+3(-)"!.+,)-)4%$

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2010 Rs. in thousands Particulars Year ended Year ended 31 March 2010 31 March 2009 A. Cash Flow from Operating Activities (5536) (1909638) B. Cash Flow from Investing Activities (437720) (71381) C. Cash Flow from Financing Activities 1085884 1917338 Total 642628 (63681) D. Balances at the beginning of the year Cash and balances with RBI 3949949 3540681 Balances with Bank and Money at Call 2910706 3383655 E. Balances at the end of the year Cash and balances with RBI 6128986 3949949 Balances with Bank and Money at Call 1374297 2910706 F. Total Cash Flow during the tear (A + B + C) Or (D-E) 642628 (63681) A. Cash Flow from operating activities I + II Interest received during the year from Advances Investments etc 5345706 4084150 Other Income 909876 793594 Less Interest paid during the year on Deposits, Borrowings etc. 3940207 2867958 Operating expenses including Provisions and Contingencies 2082337 1435272 Add Adjustments for Depreciation and non cash Charges 103045 75467 I Cash Profit Generated from Operations 336083 649981 (prior to changes in operating Assets & Liabilities) Ii Cash Flow from Operating Assets & Liabilities Deposits 21296727 13603911 Borrowings 1205534 (40000) Other Operating Liabilities 621523 47289 Decrease/(Increase) in Assets Advances (18102022) (10940232) Investments (4604304) (4923066) Other Operating Assets (759076) (307521) To ta l I I (341618) (2559619)

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72 4(%$(!.!,!+3(-)"!.+,)-)4%$

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2010 Rs. in thousands Particulars Year ended Year ended 31 March 2010 31 March 2009 Net Cash Flow from Operating Activities (I + II) (5536) (1909638) B. Cash Flow from Investing Activities Purchase of Fixed Assets (543877) (76485) Sale of Old Fixed Assets 106157 5104 Net Cash Flow from Investing Activities (437720) (71381) C. Cash Flow from Financing Activities Share Capital - Rights Issue – 320578 Share Premium 1596764 Subordinated Debt(Tier Bonds) raised 1500000 – Redemption of Tier II Bonds (350000) – Dividend written back – 37504 Dividend Paid (64116) (37508) Net Cash Flow from Financing Activities 1085884 1917338

Raghu Mohan N. Ravindran K. Warrier Bipin Kabra Senior Vice President (Finance & Accounts) Company Secretary Chief Financial Officer

Ghanshyam Dass Amitabh Chaturvedi Ghyanendra Nath Bajpai Director Managing Director & CEO Chairman

S. Santhanakrishnan Shailesh V. Haribhakti K. Srikanth Reddy Director Director Director

In terms of our report of even date attached For Walker, Chandiok & Co. For Shah Gupta & Co. Chartered Accountants Chartered Accountants

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No.: F- 37606 Firm Reg. No.: 001076N Firm Reg. No.:109574W Date: May 11, 2010 Place: Mumbai

73 4(%$(!.!,!+3(-)"!.+,)-)4%$ SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS AS AT 31 MARCH 2010 (Rs in thousands) Schedule 1 – Capital As at As at 31 March 2010 31 March 2009 Authorised Capital - 100000000 Equity Shares of Rs.10 each 1000000 1000000 Issued Capital - 67374500 Equity Shares of Rs 10 each 673745 673745 (Previous Year - 67374500 Equity Shares of Rs 10 each) Subscribed Capital - 64115600 Equity Shares of Rs.10 each 641156 641156 (Previous Year - 64115600 Equity Shares of Rs.10 each) Called up Capital – 64115600 Equity Shares of Rs 10 each 641156 641156 (Previous Year - 64115600 Equity Shares of Rs.10 each) Paid up Capital - 64115600 Equity Shares of Rs.10 fully each fully paid up 641156 641156 (Previous Year - 64115600 Equity Shares of Rs.10 each) TOTAL 641156 641156

Schedule 2 - Reserves and Surplus Statutory Reserves Opening Balance 624516 452162 Additions during the year 69911 172354 694427 624516 Capital Reserves Opening Balance 233389 197592 Transfer from Profit & Loss Account 64927 37940 Deductions due to Depreciation of Revalued Premises (2036) (2143) 296280 233389 Share Premium Opening Balance 2050268 383262 Additions during the year – 1667006 2050268 2050268 Revenue and other Reserves Opening Balance 669921 357468 Additions : Transfer from Profit and Loss account 7343 312453 677264 669921 Special Reserve U/S 36(1)(viii) of Income Tax Act Opening Balance 25432 11173 Additions : Transfer from Profit and Loss account 15844 14259 41276 25432 Balance in Profit and Loss Account 100 100 Total 3759615 3603626

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74 4(%$(!.!,!+3(-)"!.+,)-)4%$ SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS AS AT 31 MARCH 2010 (Rs in thousands) Schedule 3 - Deposits As at As at 31 March 2010 31 March 2009 Demand Deposits From Banks 151 140 From Others 5634525 4607719 Savings Bank Deposits 9880748 7468431 Term Deposits From Banks 1155000 935000 From Others 54314416 36676823 Total 70984840 49688113 Deposits of Branches in India 70984840 49688113 Deposits of Branches outside India ––

Schedule 4 – Borrowings Borrowings in India Reserve Bank of India 20000 – Other banks –– Other institutions and Agencies 1185534 – Borrowings outside India – Total 1205534 –

Schedule 5 - Other Liabilities and Provisions Bills Payable 690254 523831 Interest accrued 901629 728717 Others (including Provisions) 715882 422798 Unsecured Redeemable Bonds (Subordinated Debt for Tier II Capital) 1970000 820000 Total 4277765 2495346

Schedule 6 - Cash and balance with Reserve Bank of India Cash in Hand (including foreign currency notes) 1181108 788698 Balances with Reserve Bank of India (i) in Current Accounts 4947878 3161251 (ii) in Other Accounts __ Total 6128986 3949949

Schedule 7 - Balance with Banks and Money at Call and Short Notice In India I Balances with banks in current accounts 486717 272120 in other deposit accounts 768485 2594985 II Money at call & short notice with banks –– with other institutions –– Total 1255202 2867105 Outside India i) in current accounts 119095 43601 ii) in other deposit accounts –– iii) Money at call and short notice –– Total 119095 43601 Grand Total 1374297 2910706

75 4(%$(!.!,!+3(-)"!.+,)-)4%$ SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS AS AT 31 MARCH 2010 (Rs in thousands) Schedule 8 - Investments As at As at 31 March 2010 31 March 2009 Investments in India In Government Securities 16794051 13875787 In Approved securities 1749894 3654 Shares 6200 19771 Debentures and Bonds 330000 285000 Subsidiaries/Joint Ventures –– Others 1397782 1489411 Total 20277927 15673623 Investment in India ( Gross) 20359117 15753882 Less Depreciation and Provisions 81190 80259 Total 20277927 15673623 Investments outside India –– Total 20277927 15673623

Schedule 9 - Advances A i) Bills Purchased and discounted 1097056 1675540 ii) Cash Credits Overdrafts and Loans repayable on Demand 17770979 14518686 iii) Term Loans 31194551 15766338 Total 50062586 31960564

B i) Secured by Tangible assets 38580562 27081034 ii) Covered by Bank/Govt Guarantee 97291 492099 iii) Unsecured 11384733 4387431 Total 50062586 31960564

C. I Advances in India i) Priority sectors 12553586 10502450 ii) Public Sector 3107579 1575460 iii) Banks 4148 – iv) Others 34397273 19882654 Total 50062586 31960564 II Advances outside India –– Total 50062586 31960564

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76 4(%$(!.!,!+3(-)"!.+,)-)4%$ SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS AS AT 31 MARCH 2010 (Rs in thousands) Schedule 10 - Fixed Assets As at As at 31 March 2010 31 March 2009 Premises At cost as on 31 March of the preceding year 342798 342798 Additions/Adjustments during the year 6416 – Deductions during the year 31.03.2010 31.03.2009 Revaluation Reserve 10369 8333 Depreciation to date 67689 60951 (78058) (69284) Total 271156 273514 Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as on 31st March of the preceding year 756469 685088 Additions during the year 349212 76485 Deductions during the year (106157) (5104) Depreciation to date (664228) (567922) Total 335296 188547 Capital Work-in-progress 188249 - Total 794701 462061

Schedule 11 - Other Assets Inter Office Adjustments (Net) 337272 100862 Interest Accrued 664884 586755 Tax paid in advance and Tax Deducted at Source 427820 250766 Stationery and stamps 648 1409 Non Banking Assets acquired in satisfaction of claims 1682 1110 Deferred Tax Asset 48670 41883 Others 749437 488553 Total 2230413 1471338

Schedule 12 – Contingent Liabilities Claims against the bank not acknowledged as debts 26770 16930 Liabilities on account of outstanding forward exchange contracts 3150964 877075 Guarantees given on behalf of constituents in India 1282637 969790 Acceptance endorsements and other obligations 382101 405362 Other items for which Bank is contingently liable 732799 226144 (Disputed Income Tax Liability) Total 5575271 2495301

Schedule 13 - Interest Earned Interest/Discount on Advances/bills 4193945 2920938 Income on Investments 1078520 790315 Interest on balance with Reserve Bank of India and other inter bank funds 53131 372897 Others 20110 – Total 5345706 4084150

77 4(%$(!.!,!+3(-)"!.+,)-)4%$ Schedules forming part of the Financial Statements as at 31 March 2010

(Rs in thousands) Schedule 14 - Other Income As at As at 31 March, 2010 31 March, 2009 Commission Exchange and Brokerage 70315 101304 Profit/(Loss) on sale of Investments (Net) 177943 73658 Profit /(Loss)on sale of land building and other assets (Net) 7120 1844 Profit/(Loss) on exchange transactions (Net) 23299 37803 Income from Insurance 56998 73390 Miscellaneous Income 574201 505595 Total 909876 793594

Schedule 15 - Interest Expended Interest on Deposits 3702272 2794742 Interest on Reserve Bank of India and inter bank borrowing 108178 6405 Others 129757 66811 Total 3940207 2867958

Schedule 16 - Operating Expenses Payments to and Provisions to Employees 1090805 625615 Rent Taxes and Lighting 216027 139138 Printing and Stationery 30700 15274 Advertisement and Publicity 5875 7044 Depreciation to Banks property 103045 75467 Directors Fee Allowance and Expense 3097 2487 Auditors Fee and Expense (including Branch Auditors) 5897 5311 Law charges 1484 5774 Postages, Telegrams, Telephones etc 50675 26131 Repairs and Maintenance 20028 15243 Insurance 51830 37439 Other Expenditure 349119 175817 Total 1928582 1130740

Provisions & Contingencies Provision for Non Performing Assets (Advances) 22200 18693 Floating Provision for NPA (Advances) – 20000 Provision for Standard Assets 74200 5200 Provision for Restructured Advances 4115 6521 Provision for Securitisation – 49500 Bad Debts Written Off 7930 3221 Provision for Depreciation on Investments (Net) 6731 (9385) Provision for NPA (Investments) (5800) (11331) Provision for Income Tax/ Wealth Tax/ FBT 51167 226237 Deferred Tax Asset (6787) (4124) Total 153756 304532

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78 4(%$(!.!,!+3(-)"!.+,)-)4%$ SCHEDULE 17 - PRINCIPAL ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH, 2010 Back ground The Dhanalakshmi Bank Limited was incorporated in November 1927 at Thrissur, in Kerala by a group of ambitious entrepreneurs. Dhanalak- shmi bank is a banking company governed by The Banking Regulation Act, 1949. It became a scheduled commercial bank since 1977. PRINCIPAL ACCOUNTING POLICIES 1. Basis of preparation of financial statements The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and in compliance with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time, Accounting Standards (‘AS’) issued by the Institute of Chartered Accountants of India (‘ICAI’) and notified by the Companies Accounting Stan- dard Rules 2006 to the extent applicable and in compliance of the current practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions considering the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expense for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may differ from these estimates. Any revision in the accounting estimates is recognized prospectively in the current and future period. 2. Revenue recognition • Items of income and expenditure are accounted for on accrual basis, except as stated hereunder: Interest on loans and advances is recognized on accrual basis other than on those stipulated in RBI’s prudential norms on income recognition, asset classification and provisioning relating to NPAs where the income is recognized on realization. • In respect of accounts covered under one time settlement, the recoveries are adjusted against book balance and the net balance is written off. • Income accounted for in the preceding year and remaining unrealized is de-recognised in respect of advances classified as NPA during the year. Interest on NPA is transferred to interest suspense account and recognised in Profit and Loss Account when realised • Rent on safe deposit lockers, dividends, depository participant business etc are accounted for on cash basis. Discount on bills are recognized upfront except where the tenor exceeds one year. • Interest on income tax refunds is accounted in the year in which the same is determined. • In respect of sale of Assets under securitization the Bank has followed RBI guidelines as under: o Sale price received shall be duly accounted for and shall be apportioned to each asset on the basis of respective valua- tions given to the asset. o If the sale price is below Net Book Value (i.e. Outstanding book balance less interest suspense and provisions held) {Net NPA}, then short fall should be debited to profit and loss account. o If sale value is higher than the Net NPA balance, then excess provisions shall not be reversed but should be utilized to meet the shortfall/loss on account of sale of other non performing Assets. o The cash consideration received in respect of written off accounts shall be taken to Profit and Account and the value of Security Receipts shall be shown under investment and the corresponding provision shall be held. 3. Investments Investments in Government, other approved securities, shares, debentures, bonds and other securities are categorized into (a) Held to Maturity (b) Held for Trading and (c) Available for Sale in terms of RBI guidelines. In determining acquisition cost of an investment: • Brokerage, Commission, etc. paid at the time of acquisition, are charged to revenue. • Broken period interest on debt instruments is treated as a revenue item. • Cost of investments is based on the following basis:- o Held to Maturity – Individual cost o Held for Trading – Weighted Average o Available for sale – Weighted Average

79 4(%$(!.!,!+3(-)"!.+,)-)4%$ Valuation of Investments is done as under Particulars Valuation Norms Central Government Securities Prices published by PDAI/FIMMDA State Government Securities At YTM published by PDAI/FIMMDA Other Approved Securities YTM published by PDAI/FIMMDA duly adjusted as per RBI guidelines Bonds, Debentures and Preference Shares As per rates / methodologies prescribed by FIMMDA. Equity Shares Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at Re 1/- per Company. Units of Mutual Fund Re-purchase price / NAV declared by the Mutual Fund as at the close of the year. Other securities As per guidelines prescribed by RBI The premium (acquisition cost over the face value), if any, is amortised over the remaining period of maturity in respect of securities held under Held to Maturity category based on “Constant Yield Method”. Profit on redemption / sale of securities in Held to Maturity category is transferred to Capital Reserve. The shifting of securities from one category to another is done with the approval of the Board as per RBI guidelines. The shifting is ef- fected at acquisition cost/book /market value on the date of transfer, whichever is the least and the depreciation if any at the time of shifting is fully provided for. Repo and Reverse Repo Transactions: In a repo transaction, the bank borrows monies against pledge of securities. The book value of the securities pledged is credited to the investment account. Borrowing costs on repo transactions are accounted for as interest expense. In respect of repo transactions outstanding at the balance sheet date, the difference between the sale price and book value, if the former is lower than the latter, is provided as a loss in the income statement. In a reverse repo transaction, the bank lends monies against incoming pledge of securities. The securities purchased are debited to the investment account at the market price on the date of the transaction. Revenues thereon are accounted as interest income. In respect of repo transactions under Liquidity Adjustment Facility with RBI (LAF), monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income. 4. Advances Advances are classified as performing and non-performing based on the Reserve Bank of India guidelines and further into Standard, Sub-Standard , Doubtful and Loss Assets and are stated net of bills rediscounted, specific provisions, floating provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation. Specific loan loss provisions in respect of non-performing advances (NPAs) are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed in the RBI guidelines. The Bank maintains general provision for standard assets at levels stipulated by RBI from time to time. Provision for standard assets is included under Other Liabilities. Provisions made in excess of these regulatory levels or provisions which are not made with respect to specific non-performing assets or assets which are restructured / securitised are categorised as floating provisions. The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modi- fication of terms of the advance/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of installments/rate of interest (due to reasons other than competitive reasons). Restructured accounts are reported as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made. 5. Fixed assets and depreciation Fixed assets, except those revalued, are stated at cost less accumulated depreciation. Cost includes cost of purchase and all expenditure like site preparation, installation costs, professional fees and other expenses incurred on the asset before it is ready to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the futures benefit/functioning capability from/of such assets. Depreciation is charged over the estimated useful life of the fixed asset on a written down value basis except on computers. The rates of depreciation are given below: • Owned Premises at 5.00% per annum • Office equipment at 18.10% per annum • Motor cars at 25.89% per annum • Electrical items at 13.91% • Items (excluding staff assets) costing less than Rs. 5,000/- are fully depreciated in the year of purchase • All other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956 • Computers including software and system development expenditure at 33.33% per annum on Straight Line Basis.

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80 4(%$(!.!,!+3(-)"!.+,)-)4%$ Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 3 to 5 year. For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank. 6. Impairment of assets The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment of loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount. 7. Transactions involving foreign exchange • Monetary assets and liabilities are translated at the exchange rates prevailing at the close of the year as advised by FEDAI and the resulting net gain/loss is recognized in the revenue account. • Profit or loss on outstanding forward foreign currency contracts are accounted for at the exchange rates prevailing at the close of the year as per FEDAI/ RBI guidelines. • Income and expenditure items are accounted at the exchange rates ruling on the date of transaction. • Contingent liabilities in respect of outstanding forward foreign currency exchange contracts, guarantees and letters of credit are stated at the exchange rates prevailing at the close of the year. • Premium/discount on hedge swaps are recognized as interest income/expenses and are recognized/ amortised over the period of the transactions. 8. Employee benefits • Employee Stock Option Scheme (“ESOS”) The Dhanalakshmi Bank Limited Employees Stock Option Scheme 2009 (“ESOP Scheme“) provides for the grant of equity shares of the Bank to its eligible employees and Directors in the whole time employment of the Bank / Managing Director. The Scheme provides that employees are granted an option to acquire equity shares of the Bank that vests in a graded manner. The options may be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee’s compensation plans. In this regard the Bank has complied with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999. The defined employee benefit schemes are as under:- • Provident Fund The contribution as required by the statute is made to the Staff PF Trust of the Bank is debited to the Profit and Loss Account. The obligation of the Bank is limited to such contribution. • Gratuity The Bank has a defined benefit gratuity plan for Officers and Workmen. Every Officer / workman who has rendered con- tinuous services of five years or more is eligible for Gratuity on superannuation, resignation, termination, disablement or on death. The scheme is funded by the bank and is managed by a separate staff trust. The liability for the same is recognized on the basis of actuarial valuation. • Pension The bank has a defined benefit pension Plan. The plan applies to those employees of the bank who were on the Bank pay- roll as on September 29, 1995, having opted for the pension scheme and to all workmen joining, thereafter. The scheme is managed by a simple separate trust and the liability for the same is recognized on the basis of actuarial valuation. 9. Lease Accounting Lease payments for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS - 19, Leases. 10. Income tax Income tax expense comprises current tax provision, the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. 11. Accounting for provisions, contingent liabilities and contingent assets In accordance with AS - 29, Provisions, Contingent Liabilities and Contingent Assets, issued by the Institute of Chartered Accountants of India, the Bank recognises provisions when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

81 4(%$(!.!,!+3(-)"!.+,)-)4%$ Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supple- mented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. Contingent Assets, if any, are not recognised in the financial statements since this may result in the recognition of income that may never be realized. 12. Earnings per share The Bank reports basic and diluted earnings per equity share in accordance with AS - 20, Earnings per Share, issued by the Institute of Chartered Accountants of India. Basic earnings per equity share have been computed by dividing net profit for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive. 13. Segment reporting The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17. Primary Segments: Business segments. a. Treasury Operations: Includes the entire investment portfolio of the bank. b. Corporate/Wholesale Banking : Includes all advances to trusts, partnership firms, companies and statutory bodies which are not included under “Retail Banking” c. Retail Banking: The exposure upto Rs. 5.00 Crores to individual, HUF, Partnership firm, Trust, Private Ltd. Companies, Public Ltd. Companies, Co-operative Societies etc. or to a small business is covered under retail banking. Small business is one where average of last three years annual turnover (actual for existing & projected for new entities) is less than Rs.50 crores. d. Other banking business operations: Includes all other Banking operations not covered under Treasury, Wholesale Banking and Retail banking Segments. Other banking business is the residual category. Secondary Segments: Geographical segments Since the Bank is having domestic operations only, no reporting does arise under this segment. SCHEDULE 18 - Notes appended to and forming part of the financial statements for the year ended 31 March, 2010 1. Capital commitments Rs. 7, 74 Lakhs. 2. Commission from insurance business is accounted on accrual basis which hitherto was accounted on cash basis. Had the Bank accounted commission on cash basis, profit (net of tax) for the year would have been lower by Rs. 84 Lakhs. 3. (a) Provisions and Contingencies in Lakhs Particulars 31.03.2010 31.03.2009 Provision for depreciation on Investments 67 (94) Provision towards Standard Assets 7,42 52 Provision towards NPA (including write off) 3,01 2,19 Provision towards Non Performing Investments (58) (1,13) Provision towards Security Receipts –4,95 Provision towards Income Tax, Wealth Tax, FBT etc. 5,12 22,62 Deferred Tax Asset/Liability (68) (41) Provision for diminution in value of Restructured Accounts 42 65 Floating Provision for NPA (Advances) – 2,00 Total 15,38 30,45 (b) Floating Provisions in Lakhs Particulars 31.03.2010 31.03.2009 (a) Opening balance in the floating provisions account 2,00 – (b) The quantum of floating provisions made During the accounting year – 2,00 (c) Amount of draw down made during the accounting year – – (d) Closing balance in the floating provisions account 2,00 2,00

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82 4(%$(!.!,!+3(-)"!.+,)-)4%$ 4. Capital adequacy in Lakhs Sr. Items 31.03.2010 31.03.2009 No. Basel I Basel II Basel I Basel II (i) CRAR (%) 12.47 12.99 14.44 15.38 (ii) CRAR-Tier I Capital (%) 8.45 8.80 12.90 13.75 (iii) CRAR-Tier II Capital (%) 4.02 4.19 1.54 1.63 (iv) Amount of Subordinated debt raised as Tier-II capital 1,97,00 1,97,00 82,00 82,00 5. Investments in Lakhs Items 31.03.2010 31.03.2009 (1) Value of Investments (i) Gross Value of Investments (a) In India 20,35,91 15,75,39 (b) Outside India, Nil Nil (ii) Provisions for Depreciation (a) In India 8,11 8,03 (b) Outside India, Nil Nil (iii) Net Value of Investments (a) In India 20,27,80 15,67,36 (b) Outside India, Nil Nil (2) Movement of provisions held towards depreciation on investments. (i) Opening balance 8,03 7,54 (ii) Add: Provisions made during the year 67 5,92 (iii) Less: (Write-off/write-back of excess provisions during the year) 59 5,43 (iv) Closing Balance 8,11 8,03 6. Repo transactions in Lakhs

Particulars Minimum Maximum Daily Average As on As on outstanding during outstanding during outstanding during 31 March, 31 March, the Financial Year the Financial Year the Financial Year 2010 2009 2010 2009 2010 2009 2010 2009 Securities sold under repos 26,25 15,75 26,25 31,50 48,75 51 26,25 NIL Securities purchased under reverse repos 26,25 5,25 1,05,00 2,78,25 25,00 24,99 NIL 1,25,00 7. Non-SLR investment portfolio a. Issuer composition of Non SLR investments in Lakhs Sl. Issuer Amount Extent of Extent of ‘Below Extent of Extent of No. Private Investment ‘Unrated’ ‘Unlisted’ Placement Grade’ Securities Securities Securities (i) PSUs - - - - - (ii) FIs 10,00 10,00 - - - (iii Banks 10,00 8,00 6,00 - - (iv) Private Corporate 35,19 17,19 - 1,34 1,31 (v) Subsidiaries/ Joint Ventures - - - - - (vi) Others 13,13 - - - (vii) Provision held towardsdepreciation - - - - - Total 68,32 35,19 6,00 1,34 1,31 b. Non-Performing Non-SLR Investments In Lakhs Particulars 31.03.2010 31.03.2009 Opening balance 8,03 4,17 Additions during the year Nil 6,51 Reductions during the year 59 2,65 Closing balance 7,44 8,03 Total provisions held 7,44 8,03

83 4(%$(!.!,!+3(-)"!.+,)-)4%$ 8. Derivatives The bank uses forward exchange contract to hedge against its foreign currency exposures relating to the underlying transaction and firm commitments. The bank has not entered into any derivative instruments for trading /speculative purposes either in Foreign Exchange or domestic treasury operations. 9. Asset quality i) In terms of Agricultural Debt Waiver and Debt Relief Scheme 2008, framed by the Government of India, the bank has received Rs.313 lakhs from RBI on account of loans to small and marginal farmers out of the amount eligible for debt waiver of Rs.435 lakhs. The balance amount of Rs.122 lakhs has been shown as receivables and clubbed under the head “Advances”. The position with reference to Agricultural Debt Relief Scheme is as under: Claim pertaining to Debt Relief arising till December 31,2009 is Rs.16 lakhs which is shown as Receivable from Government of India under Agricultural Debt Relief Scheme 2008(which can be clubbed under the head “advances”). Government of India has subsequently extended the scheme upto June 30, 2010. ii) Non-Performing Asset in Lakhs Items 31.03.2010 31.03.2009 (i) Net NPAs to Net Advances (%) 0.84 0.88 (ii) Movement of NPAs (Gross) (a) Opening balance 64,43 63,21 (b) Additions during the year 52,16 37,45 (c) Reductions during the year 39,09 36,23 (d) Closing balance 77,50 64,43 (iii) Movement of Net NPAs (a) Opening balance 28,24 18,56 (b) Additions during the year 46,06 27,41 (c) Reductions during the year 32,13 15,09 (d) ECGC Collection 23 64 (e) Floating Provision - 2,00 (f) Closing balance 41,94 28,24 (iv) Movement of provisions for NPAs (excluding provisions on standard assets) (a) Opening balance 35,55 44,00 (b) Provisions made during the year 12,85 *12,05 (c) Write-off/write-back of excess provisions 13,71 20,50 (d) Closing balance 34,69 35,55 *Includes floating provision of Rs.200 lakhs Total amount recovered from SC/ST borrowers is Rs. 13.09 lakhs (Rs.34.70 lakhs) iii) Details of Loan Assets subjected to Restructuring in Lakhs

Particulars CDR SME Debt Others Mechanism Restructuring Standard advances restructured No. of Borrowers Nil Nil 43 Amount outstanding 35,62 Sacrifice 1,06* (Diminution in the fair value) Sub standard advances restructured No. of Borrowers Nil Nil Nil Amount outstanding Sacrifice (Diminution in the fair value) Doubtful advances restructured No. of Borrowers Nil Nil Nil Amount outstanding Sacrifice (Diminution in the fair value) Total No. of Borrowers Nil Nil 43 Amount outstanding 35,62 Sacrifice 1,06 (Diminution in the fair value) *Sacrifice upto 31.03.2009 provided : Rs. 65 lakhs Sacrifice for 01.04.2009 to 31.03.2010 to be provided : Rs. 41 lakhs Total : Rs. 1,06 lakhs

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84 4(%$(!.!,!+3(-)"!.+,)-)4%$ iv) Details of financial assets sold to Securitisation / Reconstruction Company: in Lakhs

Sl. Item 31.03.2010 31.03.2009 No. (i) No. of accounts Nil 24 (ii) Aggregate value (net of provisions) of accounts sold to SC/RC – – (iii) Aggregate consideration Nil 5,50 (iv) Additional consideration realized in respect of accounts transferred in earlier years – – (v) Aggregate gain/loss over net book value. NIL 5,50 v) Provisions on Standard Assets in Lakhs

Item 31.03.2010 31.03.2009 Provisions towards Standard Assets 19,12 11,71 10. Business ratios

Sr. No. Items 31.03.2010 31.03.2009 (i) Interest Income as a percentage to Working Funds (%) 7.97 8.60 (ii) Non-interest income as a percentage to Working Funds (%) 1.36 1.67 (iii) Operating Profit as a percentage to Working Funds (%) 0.58 1.85 (iv) Return on Assets (%) 0.35 1.21 (v) Business (Deposits plus advances) per employee – Rs. in Lakhs 369.61 585.88 (vi) Profit/(Loss) per employee - Rs. in Lakhs 0.07 4.10 11. Asset Liability Management Maturity Pattern of certain items of assets and liabilities in Lakhs

Due within Advances Investments Foreign currency Deposits Borrowings Assets Liabilities Day 1 95,37 - 24 6,45 65,16 - 2 to 7 Days 60,57 - 99,09 18 2,31,48 49,98 8 to 14 days 63,02 24,97 - 13 1,92,20 2,00 15 to 28 days 95,38 71,39 - 62 2,59,30 9,98 29 days upto 3 months 3,56,25 41,18 22,02 9,52 8,54,19 - Over 3 months and upto 6 months 359,09 73,29 4,67 8,60 16,96,06 - Over 6 months and upto 1 year 580,42 18,20 1,20 22,47 14,57,80 - Over 1 year and upto 3 years 15,78,77 4,12 - 4,32 22,18,78 32,03 Over 3 years and upto 5 years 11,18,16 211,32 - 6,65 99,94 26,56 Over 5 years 6,99,24 1591,44 - - 23,57 - Total 50,06,27 20,35,91 1,27,22 58,94 70,98,48 1,20,55

85 4(%$(!.!,!+3(-)"!.+,)-)4%$ 12. Lending to sensitive sector i) Exposure to Real Estate Sector in Lakhs Category 31.03.2010 31.03.2009 a) Direct exposure (i) Residential Mortgages – Lendings fully secured by mortgages on residential property that is or will be occupied by the 1,66,68 1,94,74 borrower or that is rented; (of which individual housing loans up to Rs. 15 lakhs) 1,58,82 1,06,40 (ii) Commercial Real Estate – Lendings secured by mortgages on commercial real estates (officebuildings, retail space, 1,10,14 1,42,25 multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits; (iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures – a. Residential, - - b. Commercial Real Estate. - - b) Indirect Exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Fi- 1,84,03 - nance Companies (HFCs). ii) Exposure to Capital Market in Lakhs Particulars Current year Previous Year (i) direct investment in equity shares, convertible bonds, convertible debentures and units 3,30 4,65 of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt; (ii) advances against shares/bonds/ debentures or other securities or on clean basis to 37 55 individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds; (iii) advances for any other purposes where shares or convertible bonds or convertible –– debentures or units of equity oriented mutual funds are taken as primary security; (iv) advances for any other purposes to the extent secured by the collateral security of –– shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/ units of equity oriented mutual funds `does not fully cover the advances; (v) secured and unsecured advances to stockbrokers and guarantees issued on behalf of 60 3,83 stockbrokers and market makers; (vi) loans sanctioned to corporates against the security of shares/ bonds/ debentures or –– other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources; (vii) bridge loans to companies against expected equity flows/issues; – – (viii) underwriting commitments taken up by the banks in respect of primary issue of shares –– or convertible bonds or convertible debentures or units of equity oriented mutual funds; (ix) financing to stockbrokers for margin trading; – – (x) all exposures to Venture Capital Funds (both registered and unregistered) will be –– deemed to be on par with equity and hence will be reckoned for compliance with the capital market exposure ceilings (both direct and indirect) Total Exposure to Capital Market 4,27 9,03

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86 4(%$(!.!,!+3(-)"!.+,)-)4%$ 13. Risk category wise country exposure in Lakhs Risk Category Exposure (net) as at Provision held as at Exposure (net) as at Provision held as at 31.03.2010 31.03.2010 31.03.2009 31.03.2009 Insignificant 19,12 Nil 38,58 Nil Low - Nil - Nil Moderate - Nil - Nil High - Nil - Nil Very High - Nil - Nil Restricted - Nil - Nil Off-credit - Nil - Nil Total 19,12 Nil 38,58 Nil 14. Details of single borrower limit, group borrower limit exceeded by the bank The bank has not exceeded single borrower limit or group borrower limit during the year 15. Amount of provisions made for tax during the year in Lakhs Particulars 31.03.2010 31.03.2009 Income Tax 5,08 22,21 Wealth Tax 4 4 Fringe Benefit Tax - 37 Deferred Tax (68) (42) 16. No penalty has been imposed during the year 2009-10 by RBI. 17. Disclosure for customer complaints/unimplemented awards of Banking ombudsman

Customer complaints Particulars 31.03.2010 (a) No. of complaints pending at the beginning of the year 5 (b) No. of complaints received during the year 169 (c) No. of complaints redressed during the year 162 (d) No. of complaints pending at the end of the year 12

Unimplemented awards of Banking Ombudsmen Particulars 31.03.2010 (a) No. of unimplemented awards at the beginning of the year Nil (b) No. of Awards passed by the Banking Ombudsmen during the year Nil (c) No. of Awards implemented during the year Nil (d) No. of unimplemented Awards during the year Nil

18. Disclosure of letter of comforts (locs) issued by the bank The Bank has not issued any Letter of Comfort during the year ended 31 March, 2010. 19. (I) Concentration of deposits, advances and npas a) Concentration of Deposits in Lakhs

Particulars Amount Total Deposits of twenty largest depositors 20,29,00 Percentage of Deposits of twenty largest depositors to Total Deposits of the Bank 28.57% b) Concentration of Advances in Lakhs

Particulars Amount Total Advances to twenty largest borrowers 14,63,56 Percentage of Advances to twenty largest borrowers to Total Advances of the bank 28.93%

87 4(%$(!.!,!+3(-)"!.+,)-)4%$ c) Concentration of Exposures in Lakhs

Particulars Amount Total Exposure to twenty largest borrowers/customers 15,53,29 Percentage of Exposures to twenty largest Borrowers /customers to Total Exposure of the bank on borrowers/customers 30.72% d) Concentration of NPAs in Lakhs

Particulars Amount Total Exposure to top four NPA accounts 11,39 (II) Sector-wise NPAs

Sector Percentage of NPAs to Total Advances in that Sector Agriculture & allied activities 0.56 Industry (Micro & small, Medium and Large) 0.85 Services 15.52 Personal Loans 14.95 (III) Movement of NPAs In Lakhs

Particulars Amount Gross NPAs* as on 1st April 2009 64,43 Additions (Fresh NPAs) during the year 52,16 Sub-total (A) 1,16,59 Less:- (i) Up gradations 7,72 (ii) Recoveries (excluding recoveries made from upgraded accounts) 27,49 (iii) Write-offs 3,88 Sub-total (B) 39,09 Gross NPAs as on 31st March 2010 (A-B) 77,50 (IV) Overseas assets, npa and revenue in Lakhs

Particulars Amount Total Assets Nil Total NPAs Nil Total Revenue Nil (V) Off-balance sheet spvs sponsored (which are required to be consolidated as per accounting norms) in Lakhs

Name of the SPV sponsored Domestic Overseas Nil Nil 20. ESOP Scheme On August 6, 2009, the Bank granted 3,979,225 options to employees under two different plans at a uniform option price of Rs. 118.35. Options granted to the employees under the first plan (‘Existing Employees’) shall vest at the rate of 30%, 30% and 40% on each suc- cessive anniversary of the grant date. Options granted to the employees under the second plan (‘Joining Employees’) shall vest after completion of 12 months from the date of grant. Further, all the option granted to ‘Joining Employees’ under the scheme shall be subject to a lock in period of twenty four months from date of vesting of options under this scheme. As the closing quoted market price of share one day prior to the date of grant is same as the exercise price, intrinsic value of the options is NIL; accordingly no stock based compensation arose on these grants. 21. Employee benefits (accounting standard -15) The summarized position of various defined benefits recognized in the profit and loss account and balance sheet along with the funded status are as under:

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88 4(%$(!.!,!+3(-)"!.+,)-)4%$ A. Expenses recognized in Profit and Loss Account in Lakhs Particulars Pension Gratuity Leave Current Service Cost 226.20 144.91 241.14 Interest cost on benefit obligation 386.67 176.78 134.98 Expected return on plan assets (423.07) – – Net actuarial (gain)/loss recognized in the year (425.41) (555.27) (72.14) Expenses recognized in the Profit and Loss A/c (235.60) 233.58 303.98 B. The amount recognized in the Balance Sheet in Lakhs Particulars Pension Gratuity Leave Present Value of obligation as at 31.03.2010 (i) 5347.31 2024.92 1679.18 Fair value of plan assets as at 31.03.2010 (ii) 5144.91 2335.49 – Difference (ii) - (i) (202.40) 310.56 (1679.18) Net asset/(liability)recognized in the Balance Sheet (202.40) 310.56 (1679.18) C. Changes in the present value of the defined benefit obligations: in Lakhs Particulars Pension Gratuity Leave Present value of obligation as at 01.04.2009 5446.58 2380.52 1504.29 Interest cost 386.67 176.78 134.98 Current Service Cost 226.20 144.91 241.14 Benefits paid (70.41) (115.39) (129.09) Settlements (227.52) – – Net actuarial (gain)/loss on obligation (414.22) (561.90) (72.14) Present value of the defined benefit obligation 5347.31 2024.92 1679.18 as at 31.3.2010 D. Change in the fair value of plan assets: in Lakhs Particulars Pension Gratuity Leave Fair value of plan assets as at 01.04.2009 4882.23 2000.63 – Expected return on plan assets 423.07 191.00 – Contributions by employer 126.35 265.87 – Benefit paid (70.41) (115.39) – Settlements (227.52) – – Actuarial gain/(loss) 11.19 (6.63) – Fair value of plan assets as at 31.3.2010 5144.91 2335.49 – E. Details of the Plan Asset The details of the plan assets (at cost) as on March 31, 2010 are as follows: in Lakhs Particulars Pension Gratuity Leave Central Government securities 1,144.11 479.91 – State Government securities 975.08 690.41 – Investment in Public Sector Undertakings 1,964.15 872.38 – Investment in Private Sector Undertakings 625.38 149.93 – Others 251.23 59.55 – Total 4,959.95 2,252.18 – F. Actuarial Assumptions Principal assumptions used for actuarial valuation are:

Method used Pension Gratuity Leave Project Unit Project Unit Project Unit Credit Method Credit Method Credit Method Discount rate 7.50% 7.50% 7.50% Expected rate of return on assets 8.90% 8.90% - Future salary increase 4.50% 4.50% 4.50%

89 4(%$(!.!,!+3(-)"!.+,)-)4%$ 22. Segment reporting (AS-17) The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17. I. Primary Segments: "USINESSSEGMENTS a) Treasury Operations b) Corporate / Wholesale Banking c) Retail banking d) Other banking business operations II. Secondary Segments: 'EOGRAPHICALSEGMENTS Since the Bank is having domestic operations only, no reporting does arise under this segment. Segment results - 31.03.2010

in Lakhs Treasury Retail Banking Corporate / Other Banking Total Wholesale Banking Operations Mar-10 Mar-09 Mar-10 Mar-09 Mar-10 Mar-09 Mar-10 Mar-09 Mar-10 Mar-09 Revenue 1,34,81 1,19,30 1,40,66 1,63,88 3,47,37 1,97,25 – 7,34 6,22,84 4,87,77 Results 16,82 25,33 16,25 35,90 27,14 43,21 – 7,34 60,21 1,11,78 Unallocated Expenses 21,54 23,88 Operating Profit 38,67 87,90 Total provisions 10,94 8,24 Tax Expenses 4,44 22,21 Extraordinary items –– Profit After Tax 23,30 57,45 Other Information Segment Assets 22,60,86 15,52,45 16,09,14 18,21,85 41,41,90 21,92,80 – – 80,11,89 55,67,10 Unallocated Assets 75,00 7572 Total Assets 80,86,89 56,42,82 Segment Liabilities 21,16,68 15,26,12 15,47,33 16,38,32 39,82,80 19,71,91 – – 76,46,81 51,36,35 Unallocated Liabilities 4,40,07 5,06,47 Total Liabilities 80,86,89 56,42,82 23. Particulars of related party transactions (AS-18)

31.03.2010 31.03.2009 a) Key Management personnel 1 Shri Amitabh Chaturvedi 1. Shri P.S.Prasad * b) Nature of transaction: MD & CEO MD & CEO Remuneration (including perquisites) 2. Shri Amitabh Chaturvedi MD & CEO Rs. 36,00,000.00 (from 13.10.2008) Shri P.S. Prasad Rs. 7,72,628.00 Shri Amitabh Chaturvedi Rs. 17,90,888.00 * Upto 14 August 2008

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90 4(%$(!.!,!+3(-)"!.+,)-)4%$ 24. Lease Accounting (AS -19) The details of maturity profile of future operating lease payments are given below in lakhs Period 31.03.2010 31.03.2009 Not later than one year • Rented Premises 17,84 7,95 • IT equipments 4,07 – Later than one year and not later than five years • Rented Premises 53,42 9,26 • IT equipments 8,14 – Later than five years • Rented Premises 52,96 16,63 • IT equipments – – Total 1,36,57 33,84 Total minimum lease payments recognized in the Profit and Loss Account for the year • Rented Premises 14,30 9,01 • IT equipments – – 25. Earnings Per Share (AS - 20)

Particulars 31.03.2010 31.03.2009 Net Profit after tax available for equity share holders (Rs. in crores) 23.31 57.45 Weight average no. of equity shares for Basic EPS 6,41,15,600 6,41,15,600 Weight average no. of equity shares for Diluted EPS 6,42,79,373 – Earnings per share (Basic) Rs. 3.64 Rs. 9.16 Earning per share (Diluted) Rs. 3.64 – 26. Accounting for taxes on income (AS - 22) The major components of Deferred Tax are as follows: in lakhs

Particulars Deferred tax asset Deferred tax liability 31.03.2010 31.03.2009 31.03.2010 31.03.2009 Depreciation on Assets – – 11.13 16.22 Leave Encashment 497.83 435.04 – – Total 497.83 435.04 11.13 16.22 Net balance 486.70 418.82 – – 27. Bancassurance Business In lakhs

Sr. Nature of Income 31.03.2010 No. 1. For selling life insurance policies 59.96 2. For selling non life insurance policies 11.21 3. For selling mutual fund products 93.12 4. Others 27,00.00 Total 28,64.29 28. Miscellaneous income in schedule 14 includes Rs. 2700 lakhs being Commitment Fee received from M/s. Bajaj Allianz towards Life and General Insurance with whom the Bank has entered into agency agreement for life and general insurance. (Previous Year 2300 Lakhs) 29. The declaration of dividend is subject to RBI approval. 30. Previous Years figures are regrouped/rearranged wherever necessary to conform to current year’s classification. 31. Basel II (Pillar III) Disclosures Table DF 1 – scope of application Qualitative disclosures: a) The Dhanalakshmi Bank Ltd. has no subsidiaries. b) Not applicable since the Bank does not have any subsidiaries. Quantitative disclosures: c) & d) Since the Bank does not have any subsidiaries, there are no quantitative disclosures.

91 4(%$(!.!,!+3(-)"!.+,)-)4%$ Table DF 2 - Capital structure Qualitative disclosures: a) Summary Tier I capital of the Bank includes Equity Share Capital (64115600 equity shares of Rs.10 each fully paid up), Reserves& Surpluses comprising of Statutory Reserves, Capital Reserves, Share Premium and balance in Profit and Loss account. Tier II Capital includes Revaluation Reserve, Special Reserves, Standard Asset Provisions and Tier II Bonds. During the year, the Bank has issued Unsecured Redeemable Subordinated Non-Convertible Lower Tier - II Bonds in the nature of Promissory Notes (“Bonds”) amounting to Rs. 150 crores with a tenor of 5 years 9 months. Quantitative Disclosures: in lakhs Items 31.03.2010 31.03.2009 (a) The amount of Tier I capital, with separate disclosure of : Paid-up share capital 6411.56 6411.56 Reserves 35491.22 34069.42 Innovative Instruments –– Other capital instruments –– Sub-total 41902.72 40480.98 Less amounts deducted from Tier I capital, including goodwill and investments. 486.69 418.83 Total Tier I capital 41416.03 40062.15 (b) The total amount of Tier 2 capital (net of deductions from Tier 2 capital) 19706.24 4754.95 (c) Debt capital instruments eligible for inclusion in Upper Tier 2 capital • Total amount outstanding – • Of which amount raised during the current year. – • Amount eligible to be reckoned as capital funds – (d) Subordinated debt eligible for inclusion in Lower Tier 2 capital. Total amount outstanding 19700 8200 Of which amount raised during the current year. 15000 0 Amount eligible to be reckoned as capital funds. 16620 2560 (e) Other deductions from capital, if any 0 (f) Total eligible capital- Tier I + Tier 2 (a + b - e) 61122.33 44817.10 Table DF 3 – Capital Adequacy Qualitative disclosures: The Bank has put in place a robust Risk Management Architecture with due focus not only on Capital optimization, but also on Profit Maxi- misation. The Bank has put in place the “Internal Capital Adequacy Assessment Process” Policy. Capital requirement for current business levels and framework for assessing capital requirement for future business levels has been made. Capital need and capital optimization are monitored periodically by the Committee of Top Executives. The Top Executives deliberates on various options available for capital aug- mentation in tune with business growth. The Bank has worked out CRAR based on both Basel I and Basel II guidelines. The Bank maintains CRAR of more than 9% and Tier I CRAR of more than 6%. Besides the Bank complies with the prudential floor for maintenance of capital as per the Revised Framework. Quantitative Disclosures: in Lakhs Items 31.03.2010 31.03.2009 (a) Capital requirements for credit risk • Portfolios subject to standardized approach 39439.05 23515.55 • Securitisation exposures –– (b) Capital requirements for market risk Standardized duration approach • Interest rate risk 505.91 438.56 • Foreign exchange risk (including gold) 67.50 67.5 • Equity position risk 11.16 12.86 (c) Capital requirements for operational risk • Basic Indicator Approach 2322.15 2195 (d) Total and Tier I CRAR for the Bank • Total CRAR (%) 12.99 15.38

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92 4(%$(!.!,!+3(-)"!.+,)-)4%$

Items 31.03.2010 31.03.2009 • Tier I CRAR (%) 8.80 13.75

(e) Total and Tier I CRAR for the consolidated Group • Total CRAR (%) NA NA • Tier I CRAR (%)] NA NA (f) Total and Tier I CRAR for the Significant subsidiary which are not under consolidated group • Total CRAR (%) NA NA • Tier I CRAR (%) NA NA Table DF 4 – Credit risk: General disclosures Qualitative disclosures: (a) General : - Definitions of past due and impaired (for accounting purposes) The Bank has adopted the definition of the past due and impaired (for accounting purposes) as defined by the Regulator for income recognition and asset classification norms. As per the prudential norms applied for income recognition, asset classification and provisioning, the bank considers following categories of loans and advances as non-performing assets, wherein: • Interests and/or instalment of principal remain overdue for a period of more than 90 days in respect of a Term loan. • The account remains ‘out of order’ in respect of an overdraft/cash credit (OD/CC) • The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. • In case of agricultural advances, interest and/or instalment of principal remains overdue for 2 crop seasons (in respect of short duration crops) & 1 crop season (in respect of long duration crops) • Any amount receivable that remains overdue for a period of more than 90 days in respect of other accounts. • Interest charged during any quarter is not serviced fully within 90 days from the end of the quarter. Strategies and Processes for Credit Risk Management The Bank has put in place a comprehensive Credit Policy which is reviewed and revised periodically. The Credit Risk Management Policy forms part of the Credit Policy. The main objectives of the Credit Policy are: - • Maintain quality of loan assets. • Ensure reasonable return on the assets. • Ensure an acceptable risk profile. • Achieve proper sectoral/geographical distribution of assets • Compliance with regulatory norms in respect of exposure caps, pricing, IRAC guidelines, targeted credit etc. The Bank has defined segment wise exposure limits, industry wise exposure caps, individual and group borrower wise exposure caps. The operational processes and systems of the Bank relating to credit are built on sound credit risk management principles and are subjected to periodical review. In order to improve the quality of appraisals and to ensure accelerated response to customers, particularly in respect of high value credits, relationships and appraisal functions are segregated between the concerned branch and the core credit groups at zonal / central offices. Bank has revised many of its existing systems, procedures and structures with respect to Credit Approval Process, Credit Rating, Prudential Limits, Documentation, Credit Monitoring and Review Mechanism. Bank has a Credit Monitoring Policy and a Recovery Policy, which are reviewed from time to time. Bank has system in place for identification of credit weaknesses well in advance. A Loan Review Mechanism for constantly evaluating the quality of loan book, by way of review of sanctions made, renewal process, submission of monitoring reports, credit related MIS, is in place. The Bank has a Credit Mid Office Group which would take care of the security creation and account management and a Credit Monitoring & Review Department which would take care of the monitoring of the assets. Structure and Organization of the Risk Management function in the Bank The Bank has a Credit Risk Management Committee in place with representation from Risk, Credit Sanction & Monitoring, Business Heads, Policy & Research and the Committee is headed by the Managing Director & CEO of the Bank. CRMC discusses on adherence to pruden-

93 4(%$(!.!,!+3(-)"!.+,)-)4%$ Governance Structure of Risk Management in the Bank

BOARD OF DIRECTORS

Risk Management Committee (Supervisory Committee of Directors

Risk Management Committee (of Executives)

Credit Risk Management Committee Asset Liability Management Committee Operational Risk Management (CRMC) (ALCO) Committee (ORMC)

Integrated Risk Management Group (The organisation arm at corporate office)

tial limits set, recommends to Board, policies on rating standards and benchmarks and monitors credit risk on a bank wide basis. Scope and Nature of Risk Reporting and/or Measurement Systems The Bank has developed a comprehensive risk rating system that serves as a single point indicator of diverse risk factors of counterparty and for taking credit decisions in a consistent manner. Risk Rating system is made applicable for loan accounts with total limits of Rs.2 lakhs and above. Bank uses different rating models for different types of exposures. The Integrated Risk Management Group of the Bank validates the ratings of all exposures of Rs. 25 lakhs and above. The Group carries out an independent analysis of the various risks attached to the credit proposals including industry analysis. Bank also conducts migration analysis of the credit portfolio. Bank evaluates the asset quality by tracking the delinquencies and migration of borrower from one rating scale to another in various industry, business segment etc. Credit facilities are sanctioned at various levels in accordance with the delegation approved by the Board. The Bank has in place the following hierarchical sanctioning powers delegated for credit sanction and administration: • Branch Heads • Zonal Credit Head • Zonal Office Credit Committee (ZCC) • Central Office Credit Committee (CCC) • Management Committee of Directors (MC/ Board) Representatives from Integrated Risk Management Group forms part of the core team of various ZCCs and the CCC. The bank has implemented a fully automated software solution to get system support for calculation of Risk Weighted Assets for CRAR computation and gen- erate various credit related reports for review of exposure and monitoring, and conducting analysis of credit portfolio from various angles. Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes. Apart from the Basel defined collateral, the Bank ensures securities by way of inventories, Book Debts, plant & machineries, Land& Buildings and other moveable/im- movable assets/properties. The Bank also accepts personal/corporate guarantee as an additional comfort for credit risk mitigation. The securities are subjected to proper valuation as prescribed in the Credit Policy of the Bank. Bank has laid down detailed guidelines on documentation to ensure legal certainty of Bank’s charge on collaterals. The Bank has an exclusive set up for Credit monitoring functions in order to have greater thrust on post sanction monitoring of loans and strengthen administering the various tools available under the Bank’s policies on loan review mechanism. For effective loan review, the Bank has the following in place: - • On site monitoring tools like Inspection of assets/ books/ stock of the borrower, stock audit, operations in the account, payment of statutory dues etc. • Credit Audit system to identify, analyse instances of non-compliance and rectification • Recording of loan sanctioned by each sanctioning authority by the next higher authority.

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94 4(%$(!.!,!+3(-)"!.+,)-)4%$ • Off site monitoring tools like Financial Follow Up Reports, verification of various statutory returns, Audit Reports etc. • Credit monitoring functions is divided into pre-disbursement, during disbursement and post disbursement. Quantitative Disclosures: (a) Total Gross credit exposures: (After accounting offsets in accordance with applicable accounting regime and without taking into account the effects of credit risk mitigation techniques e.g. Collateral and netting) in Lakhs Overall credit exposure Total Total 31.03.2010 31.03.2009 31.03.2010 31.03.2009 Fund Based Loans & advances 508383.99 324529.53 535899.65 338655.73 Others (Fixed Assets & other Assets) 27515.66 14126.2 Non-Fund Based LC, BG etc. 16647.38 12501.13 18295.27 13595.85 Forward Contracts 630.19 175.42 Others 1017.7 919.3 Investments (Banking – 170443.65 60666.42 170443.65 60666.42 Book only) Total of Credit Risk exposure – – 724638.57 412918 (b) Geographic distribution of exposures: in lakhs Exposures 31.03.2010 31.03.2009 Fund based Non Fund Based Total Fund Based Non-fund based Total Domestic operations 706343.30 18295.27 724638.57 399322.15 13595.85 412918 Overseas operations Bank has no overseas operations (c) Industry type distribution of exposures: In Lakhs

Sl. Industry Fund Based Outstanding NFB Outstanding No. 31.03.2010 31.03.2009 31.3.2010 31.03.2009 2.1 Mining and Quarrying 270 – – – 2.2 Food Processing 2659 1872 – 19 2.2.1 Sugar 216 214 – – 2.2.2 Edible oils and vanaspati 107 155 – – 2.2.3 Tea –––– 2.2.4 Others –––– 2.3Beverage & Tobacco –––– 2.4.1Textiles –––– 2.4.2 Cotton Textiles 13876 15388 61 84 2.4.3 Jute Textiles – – – – 2.5 Leather & Leather products – – – – 2.6 Wood and Wood Products – – – – 2.7 Paper & paper products 13228 234 – – 2.8 Petroleum, coal products and nuclear fuels – – – – 2.9 Chemicals and chemical products 13644 6075 1044 48 2.9.1 Fertilizer 4400 – – 4 2.9.2 Drugs & pharmaceuticals 7608 1129 – – 2.9.3Petro chemicals –––– 2.9.4 Others –––– 2.10 Rubber, plastic & their products 5591 6840 – – 2.11Glass and glassware –––– 2.12 Cement and cement products 14000 – – – 2.13Basic metal & metal products –––– 2.13.1Iron and steel –––– 2.13.2 Other metal and metal products 2500 123 – – 2.14 All engineering 16635 4592 77 183 2.14.1Electronics –––– 2.14.2 Others –––– 2.15 Vehicles, vehicle parts and transport equipments 2000 – – –

95 4(%$(!.!,!+3(-)"!.+,)-)4%$ Sl. Industry Fund Based Outstanding NFB Outstanding No. 31.03.2010 31.03.2009 31.3.2010 31.03.2009 2.16 Gems & Jewellery 10813 13542 650 850 2.17 Construction 2078 3887 – 951 2.18 Infrastructure 112796 53301 1426 1070 2.18.1 Power 35489 14564 – – 2.18.2 Telecommunications 15500 – – – 2.18.3 Roads & ports 7125 478 – – 2.18.4 Other infrastructure –––– 2.19 Other Industries (Total of small, medium and large scale) 425808 276928 15037 10387 Total 706343 399322 18295 13596 (d) Residual maturity breakdown of assets: in Lakhs Maturity Pattern Advances Advances Investments Investments Foreign Currency Foreign Currency Assets 31.03.2010 31.03.2009 31.03.2010 31.03.2009 31.03.2010 31.03.2009 Day 1 95,37 129,12 – 1,73 24 13,60 2 to 7 Days 60,57 60,22 – 1,74,45 99,09 15,90 8 to 14 days 63,02 63,10 24,97 – – 5,29 15 to 28 days 95,38 26,05 71,39 3,39,20 – 3,04 29 days up to 3 months 3,56,25 2,63,11 41,18 3,18,74 22,02 6,39 Over 3 months and up to 6 months 3,59,09 1,46,16 73,29 90,14 4,67 29 Over 6 months and up to 1 year 5,80,42 2,90,01 18,20 1,35,24 1,20 – Over 1 year and up to 3 years 15,78,77 13,38,46 4,12 16,18 – – Over 3 years and up to 5 years 11,18,16 2,90,36 2,11,32 34,63 – – Over 5 years 6,99,24 5,89,47 15,91,44 4,57,05 – – Total 50,06,27 31,96,06 20,35,91 15,67,36 1,27,22 44,51 (e) Non-performing assets: in Lakhs No Items Amount 31.03.2010 31.03.2009 1 Gross NPAs 7749.89 6443 1.1 Sub-standard 3557 2330 1.2 Doubtful 1 1014 493 1.3 Doubtful 2 810 1053 1.4 Doubtful 3 1033 1624 1.5 Loss 1336 943 2 Net NPAs 7750 2824 3 NPA Ratios 3.1 Gross NPAs to Gross Advances (%) 1.54 1.99 3.2 Net NPA s to Net Advances (%) 0.84 0.88 4 Movement of NPAs (gross) 4.1 Opening balance 6443 6321 4.2 Additions 5216 3745 4.3 Reductions 3909 3623 4.4 Closing balance 7750 6443 5 Movement of provisions for NPAs 5.1 Opening balance 3555 4400 5.2 Provisions made during the year 1285 *1205 5.3 Write-off 308 1222 5.4 Write back of excess provisions 1063 828 5.5 Closing balance 3469 3555 6 Amount of non-performing investments 744.59 802.59 7 Amount of provisions held for non-performing investments 744.59 802.59 8 Movement of provisions for depreciation on investments 8.1 Opening balance 802.59 754.00 8.2 Provisions made during the period - 592.00 8.3 Write-off/ Write back of excess provisions 58.00 543.00

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96 4(%$(!.!,!+3(-)"!.+,)-)4%$ 8.4 Closing balance 744.59 802.59 * Includes floating provision of Rs. 200 lakhs Table DF 5 - Disclosures for portfolios subject to the standardized approach Qualitative Disclosures: (a) For Portfolios under the standardized approach

1 Names of credit rating agencies Domestic Rating Agencies: CRISIL, CARE, FITCH, ICRA. International Credit rating agencies: used Standard and poor, Moody’s , FITCH 2 Changes if any, since prior period No change disclosure in the identified rating agencies and reasons for the same. 3 Types of exposure for which each All the above identified Rating Agency rating are used for various types of exposures as follows agency is used : (i) For Exposure with a contractual maturity of less than or equal to one year (except Cash Credit, Overdraft and other Revolving Credits), Short-Term Rating given by ECAIs will be applicable (ii) For Domestic Cash Credit, Overdrafts and other Revolving Credits (irrespective of the period ) and/or Term Loan exposures of over one year, Long-Term Rating will be applicable. (iii) For Overseas exposures, irrespective of the contractual maturity, Long-Term Rating given by IRAs will be applicable. (iv) Rating assigned to one particular entity within a corporate group cannot be used to risk weight other entities within the same group. 4 Description of the process used to Long-term Issue Specific (our own exposures or other issuance of debt by the same bor- transfer public issue rating on to rower-constituent/counter-party) Ratings or Issuer (borrower-constituent/counter-party) comparable assets in the banking Ratings can be applied to other unrated exposures of the same borrower-constituent/ book. counterparty in the following cases: (i) If the Issue Specific Rating or Issuer Rating maps to Risk Weight equal to or higher than the unrated exposures, any other unrated exposure on the same counter-party will be assigned the same Risk Weight, if the exposure ranks paripassu or junior to the rated exposure in all aspects (ii) In cases where the borrower-constituent/counter-party has issued a debt (which is not a borrowing from our Bank), the rating given to that debt may be applied to Bank’s unrated exposures if the Bank’s exposure ranks PARI PASSU or senior to the specific rated debt in all respects and the maturity of unrated Bank’s exposure is not later than Maturity of rated debt. Quantitative Disclosures Amount of bank’s outstandings (rated & unrated) in major risk buckets- under standardized approach after factoring risk mitigants (i.e., collaterals): in Lakhs Particulars 31.03.2010 31.03.2009 Fund based Non-fund Total Fund based Non-fund Total based based Below 100% risk weight 407245.39 4088.71 411334.10 218836.50 2972.53 221809.00 100% risk weight 275936.63 14206.56 290143.19 169832.30 10198.30 180030.60 More than 100% risk weight 23161.28 – 23161.30 10653.41 425 11078.41 Total Exposure 706343.30 18295.27 724638.59 399322.21 13595.83 412918.01 Deducted (Risk mitigants) Below 100% RW 25231.13 – 25231.13 17336.58 – 17336.58 100% RW 425.58 – 425.58 12546.00 – 12546.00 More than 100% RW 9325.20 – 9325.20 8900.00 – 8900.00 Net Exposure 671361.39 18295.27 689656.68 360539.63 13595.83 374135.43 Table DF 6 –Credit risk mitigation- standardized approach Qualitative disclosure: (a) General Policies and processes for collateral valuation and management: The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes.

97 4(%$(!.!,!+3(-)"!.+,)-)4%$ A description of the main types of collateral taken by the Bank. Collateral used by the Bank as risk mitigants for capital computation under Standardized Approach comprise eligible financial collaterals namely: - • Cash and fixed deposits of the counterparty with the Bank. • Gold: value arrived at after notionally converting these to 99.99% purity. • Securities issued by Central and State Governments. • Kisan Vikas Patra and National Savings Certificates. • Life Insurance Policies restricted to their surrender value. • Debt securities rated by an approved Rating Agency. • Unrated debt securities issued by banks, listed in Stock Exchange. • Units of Mutual Funds. Bank has no practice of on balance sheet netting for credit risk mitigation. The main types of guarantor counterparty and their creditworthiness Bank accepts guarantees of individuals or corporates of adequate networth, as an additional comfort for mitigation of credit risk which can be translated into a direct claim on the guarantor and are unconditional and irrevocable. Main types of guarantor counterparty as per RBI guidelines are: - • Sovereigns (Central/ State Governments) • Sovereign entities like ECGC, CGTSI • Other entities rated AA (-) and above. The Guarantees has to be issued by entities with a lower risk weight than the counterparty. Information about risk concentrations of collaterals concentration within the mitigation taken:

Financial Risk Mitigants Outstanding Covered by Risk Concentration % Risk Mitigants (In Lakhs) 31.03.2010 31.03.2009 31.03.2010 31.03.2009 Gold 5,26,28 4,82,74 54.35 60.43 Cash & Bank Deposits 4,37,62 3,10,17 45.20 38.83 KVP / IVP / NSC 3,78 5,01 0.39 0.63 LIC Policy 57 90 0.06 0.11 Total 9,68,25 7,98,82 100 100 Majority of the financial collaterals held by the Bank are by way of Gold, own deposits, Life Insurance Policies and other approved securities. Bank does not envisage market liquidity risk in respect of financial collaterals. Concentration on account of collateral is also relevant in the case of land & building. However, as land and building is not recognized as eligible collateral under Basel II, its value is not reduced from the amount of exposure in the process of computation of capital charge. It is used only in the case of housing loan to individuals and non-performing assets to determine the appropriate risk weight. As such, there is no concentration risk on account of nature of collaterals. Quantitative Disclosures: For the disclosed Credit Risk portfolio under the Standardised Approach, the total Exposure that is covered by: (i) Eligible Financial Collateral : Rs. 968.25 crores (ii) Other eligible Collateral (after Hair Cuts) : Rs. Nil DF Table 7- Securitisation – standardized approach: Qualitative Disclosures: • Bank has not securitized any of its standard assets till date. However the Bank has sold Non-performing assets, either written off or otherwise. The Bank has outstanding investment of Rs.8.18 crores in 10 % IFMR Trust A2 series Pass Through Certificates of M/s. Equita Micro Finance India Pvt. Ltd. The same is rated by CRISIL. The PTCs is subjected to market risk capital charge and is primarily made with an earnings perspective. • Bank will not assume any credit, operational or legal risk post sale of NPAs. The effect of sale of the financial asset will be that the asset is taken off from the books of the Bank and after the sale there is no known liability devolving on the bank. • Sale will not be backed by any commitment or credit support in the nature of credit enhancement or liquidity support. • Sale will not be made contingent upon realization by the purchaser and the Bank will not be responsible for the shortfall.

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98 4(%$(!.!,!+3(-)"!.+,)-)4%$ Quantitative disclosure d) Details of portfolio of assets sold to M/s Pridhvi Asset Reconstruction and Securitisation Company Ltd. which has been fully written off in the books of account are as under. in Lakhs Type No. of accounts Balance written off 31.03.2010 31.03.2009 31.03.2010 31.03.2009 NBFC 11 15,31 Textile 12,07 Cement 13,00 IT 13,08 Steel NIL 1 NIL 10,96 Other industries 33,11 Personal group consumer durable loans 4 2,59 Trade accounts 275 Total 24 40,87 DF Table 8 - Market risk in trading book - standardized modified duration approach: Qualitative Disclosures: (a) General : - Strategies and processes Market Risk management functions of the Bank are guided by various policies like Integrated Treasury Policy and Asset Liability Manage- ment Policy. Bank has an independent Mid-Office for market risk management functions like monitoring of adherence to set limits, independent valuation and reporting of activities. Mid-Office reports to Head of Integrated Risk Management Group. The Asset Liability Com- mittee is responsible for establishing market risk management and asset liability management in the Bank, procedures thereof, monitoring adherence to prudential limits, interest rate risk management etc. The overall objective of market risk management is to create shareholder value by improving the bank’s competitive advantage and reducing loss from all types of market risk loss events. Scope and nature of risk reporting/ measurement systems The Bank has put in place regulatory/ internal limits for various products and business activities relating to trading book. Various exposure limits for market risk management such as overnight limit, VaR limit, Daylight limit, Aggregate Gap limit, Investment limits etc. are in place. The reporting system ensures timelines, reasonable accuracy with automation, highlight portfolio risk concentrations and include written analysis. The reporting formats and frequency are periodically reviewed to ensure that they suffice for risk monitoring, measuring and mitigation requirements of the Bank. Bank also subjects non-slr investments to credit rating. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Board approved policies viz. Integrated Treasury Policy and Asset Liability Management Policy provides the framework for risk assessment, identification, measurement and mitigation, risk limits and triggers, risk monitoring and reporting. Liquidity risk of the Bank is assessed through Statement of Structural Liquidity on static basis and statement of Short-term Dynamic Liquidity on dynamic basis. Structural Liquidity position is assessed on daily basis and dynamic liquidity position is assessed on a fortnightly basis. Interest Rate risk is analysed from earning perspective using Traditional Gap Analysis on a fortnightly basis and economic value perspective using Duration Gap Analysis on a quarterly basis. Stress tests are conducted at quarterly intervals to assess the impact of various contingencies on the capital of the Bank. The portfolio covered by Standardized Duration approach for computation of market risk capital charge are investment portfolio held under HFT and AFS, Gold and Forex Open positions. Quantitative Disclosures: in Lakhs Particulars Amount of capital requirement Amount of capital requirement 31.03.2010 31.03.2009 Interest rate risk 506 439 Equity position risk 11 13 Foreign exchange risk 68 65 Table DF 09 - Operational risk: Qualitative Disclosures: (a) General Strategies and processes: - Bank has put in place a framework for Operational Risk Management with a well-defined Operational Risk Management (ORM) Policy. The ORM Committee at the executive level oversees bank-wide implementation of Board approved policies and process in this regard. The Committee meets at least once in a quarter. All new products and processes of the Bank are risk vetted

99 4(%$(!.!,!+3(-)"!.+,)-)4%$ from the view point of operational risk, before implementation. The Bank is conducting Risk Control Self Assessment (RCSA) in critical business as well as Centralised activities. Risk Based Internal Audit is in place in all the Branches. The Bank has put in place important policies like Information System Security, Know Your Customer & Anti Money Laundering, Fraud Risk Management, Business Continuity and Disaster Recovery Management. Scope and nature of risk reporting/measurement systems: - The risk reporting consists of operational risk loss incidents/ events occurred in branches/ offices relating to people, process, technology and external events. The bank has implemented a software solution which is a modular Operational risk management solution which satis- fies end-to-end operational risk management requirements (quantitative and qualitative). The Loss Data Methodology document which describes the approach for collection of Loss Data was adopted, which will enable the Bank to eventually ease the transition to Advanced Measurement Approach. Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants: Internal control mechanism is in place to control and minimize the operational risks. Bank is using insurance for mitigating operational risk. The various Board approved policies viz., Operational Risk Management Policy, Outsourcing Policy, Compliance Policy, Internal Inspection & Audit Policy, Internet Banking Security Policy; Information Systems Security Policy and Business continuity Plans addresses issues pertaining to Operational Risk Management. Operational Risk capital assessment: The Bank has adopted Basic Indicator Approach for calculating capital charge for Operational Risk, as stipulated by the Reserve Bank of India. Bank has initiated steps to move on to the Advances Measurement Approach in due course. Table DF 10 - Interest rate risk in the Banking Book (IRRBB): Qualitative Disclosures: Strategies and processes The Bank has put in place a comprehensive market risk management framework to address market risks. The Asset Liability Management Policy prescribes various methodologies like Earnings at Risk to assess the impact of interest rate change on the Net Interest Income of the Bank and Duration Gap Analysis to assess the impact of interest rate risk in the Banking Book. The framework for managing interest rate risk in the Banking Book under Pillar II of Basel II is put in place by the ICAAP Policy. The Bank calculates the impact on the Market Value of Equity by Duration Gap Analysis quarterly. Scope and nature of risk reporting/ measurement systems Interest rate risk in the Banking Book is measured and Modified Duration of Equity is evaluated on a quarterly basis. The likely drop in Market Value of Equity for a 200 bps change in interest rates is computed. Earnings at Risk based on Traditional Gap Analysis are calculated on a fortnightly basis and adherence to tolerance limits set in this regard is monitored and reported to ALCO. Stress tests are conducted to assess the impact of interest rate risk under different stress scenarios on earnings of the Bank. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants Bank has operationalised mitigating/hedging measures prescribed by Integrated Treasury Policy, ALM Policy and Stress Testing Policy. The strategy adopted by ALCO for mitigating the risk is by clearly articulating the acceptable levels of exposure to specific risk types (interest rate, liquidity etc). The process for mitigating the risk is initiated by altering the mix of asset and liability composition, change in interest rates etc. Brief description of the approach used for computation of interest rate risk and nature of IRRBB The interest rate risk in Banking Book is computed through Duration Gap Analysis. The various assumptions used are as follows: - • Items such as capital, reserves & surplus, bills payable, inter-office adjustment, provisions are treated as non-rate sensitive. • Similarly items such as cash, current account, fixed assets are considered to be non rate sensitive. • The midpoint of each time bucket is considered as the proxy for the maturity of all assets and liabilities in that time bucket. • The Bank uses market yields and coupons for various instruments and they are mapped to the same set of products for respective maturities. • The frequency of coupon payment is assumed to be annual. • The basis for interest calculation for each time bucket is assumed to be ‘actual/actual’. • The Bank has also carried out studies to adopt Economic Value Approach for its additional capital calculation under Pillar II. Under this approach, the Bank’s interest rate risk is indicated by comparing the weighted average duration of assets (DA) with the weighted average duration of liabilities (DL) to arrive at the duration of the gap (equity). As with GAP analysis, the sign and magnitude of DGAP provides the impact of interest rate changes on the Economic Value of Equity (EVE).

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100 4(%$(!.!,!+3(-)"!.+,)-)4%$ • Modified Durations of each category of assets and liabilities are computed for all the time buckets using the maturity date, coupon, yield, frequency and basis for interest calculation. Quantitative Disclosures The impact on earnings and economic value of equity for notional interest rate shocks as on 31.03.2009. Earnings at Risk in Lakhs Change in interest rate Change in EaR + 25 bps 2,02 + 50 bps 4,04 + 75 bps 6,05 + 100 bps 8,07 The Bank is computing market value of equity based on Duration Gap Analysis. For a 200 bps rate shock, the drop in equity value as on 31.03.2010 19.27% Prudential floor limit for minimum capital requirements: The guidelines for implementation of the New capital adequacy framework issued by RBI, stipulates higher of the following amounts as minimum capital required to be maintained by the bank. (a) Minimum capital as per Basel II norms for Credit, Market and Operational risks. (b) Minimum capital as per Basel I norms for Credit and market risks. The minimum capital required to be maintained by the Bank as on 31.03.2010 as per Basel I norms is Rs. 4,41,06lakhs and as per Basel II norms is Rs. 4,23,46 lakhs. Capital (Tier I and Tier II) maintained by the Bank as on 31.03.2010 is Rs. 6,11, 22 lakhs, which is above the prudential floor limit.

Raghu Mohan N. Ravindran K. Warrier Bipin Kabra Senior Vice President (Finance & Accounts) Company Secretary Chief Financial Officer

Ghanshyam Dass Amitabh Chaturvedi Ghyanendra Nath Bajpai Director Managing Director & CEO Chairman

S. Santhanakrishnan Shailesh V. Haribhakti K. Srikanth Reddy Director Director Director

In terms of our report of even date attached For Walker, Chandiok & Co. For Shah Gupta & Co. Chartered Accountants Chartered Accountants

per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No.: F- 37606 Firm Reg. No.: 001076N Firm Reg. No.:109574W Date: May 11, 2010 Place: Mumbai

101 4(%$(!.!,!+3(-)"!.+,)-)4%$ BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

A. Registration Details Registration Number 09307 State Code 09

Balance sheet date 31-Mar-10

B Capital raised during the year (Rs.’000s) Public issue Nil Bonus issue Nil Rights Issue Nil Private Placement Nil

C Position of mobilisation and deployment of funds (Rs.’000s) Total Liabilities 80868910 Total assets 80868910

Sources of funds Paid up capital 641156 Reserves and Surplus 3759615

Secured Loan Nil Unsecured Loans 74160374

Application of funds Net Fixed assets 794701 Investments 20277927

Net current Assets 57488518 Misc. Expenditure Nil

Accumulated Losses Nil

D Performance of the Company (Rs.’000s) Total Income 6255582 Total Expenditure 5868789

Profit before tax 277417 Profit after tax 233037

Earnings per share Basic 3.64 Dividend rate 10% Diluted 3.64 E Generic Names of three principal products/services of the company (As per monetary terms) Item Code NA Product Description Banking Company

Raghu Mohan N Ravindran K Warrier Bipin Kabra Senior Vice President (Finance & Accounts) Company Secretary Chief Financial Officer

Ghan Shyam Dass Amitabh Chaturvedi Gyanendra Nath Bajpai Director Managing Director & CEO Chairman

S. Santhanakrishnan Shailesh V Haribhakti K. Srikanth Reddy Director Director Director

For Walker, Chandiok & Co For Shah Gupta & Co Chartered Accountants Chartered Accountants per Khushroo B. Panthaky per Vipul K. Choksi Partner Partner Membership No: F-42423 Membership No: F- 37606 Firm Reg No.: 001076N Firm Reg No.:109574W Date: May 11, 2010 Place: Mumbai

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Spine 5 mm CMYK

Wealth is in the things that

bring us happiness.

Annual Report 2009-2010 www.dhanbank.com